Accounting › Section B · Analyzing and recording transactions › Topic B.2
The expanded accounting equation
Assets = liabilities + equity tells you a balance sheet balances, but not why equity changed. The expanded equation splits equity into the owners' investment, past profits kept, and this period's revenues, expenses and dividends, so every transaction can be traced to its effect on profit.
In this topic
- Why expand the equation?
- The two parts of stockholders' equity
- What moves retained earnings
- The expanded equation
- Accounts on each side
- The chart of accounts
- Worked example: closing the loop on a year
- Worked example: finding a missing figure
- Sole proprietorships use the same idea
- Common mistakes to avoid
- Key takeaways
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