In: Accounting
Answer:
Accounting equation- This is based on double entry system of accounting that says total assets of a company are equal to total liabilities and shareholder's equity.
Assets = Liabilities + Shareholder's Equity
In this equation, Assets are the valuable resources of the company. Liabilities are the obligations and shareholder's equity is the share capital of the company that represent how the assets are financed.
Accounting equation helps in forming the balance sheet, It is the base of preparing balance sheet and it tells that balance sheet remains balanced. Each entry that is made on debit side, has corresponding credit.
Accounting equation follows the IFRS (International financial reporting standards) guidelines. IFRS are the reporting standards, that provide common law of making the financial statements so that financial statements provide true and fair picture of company's financial position.
IFRS are followed by almost all the companies internationally (except USA).