# Accounting Equation and Its Approach

In this post, we will learn about the Accounting Equation and Its Approach.

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## Accounting Equation and Its Approach

### Shareholder Equity

Shareholder equity refers to the residual interest in the assets of a company after deducting liabilities. It represents the amount of a company’s net assets that belong to its shareholders. Shareholder equity can be calculated as the sum of share capital, retained earnings, and other reserves. It is a key measure of a company’s financial health and represents the amount of assets that would be distributed to shareholders if the company were to liquidate its assets and settle its liabilities. Shareholder equity is also known as stockholder equity or owner’s equity.

### Formulas

Equity = Assets – Liabilities

Share Holder Equity = Total Assets – Total Liabilities

Total Assets = Total Liabilities + Share Holder Equity

### Accounting Equation

• It is also called the Basic Accounting equation or Balance Sheet equation.
• It is the foundation of the double-entry accounting system.
• It shows on the company’s Balance Sheet.
• Both Liabilities and Shareholders’ equity represent how the assets of a Company are financed.

### Rules of Accounting Equation Approach

• Increase in Assets are Debits & Decrease in assets are Credits.
• Increase in Capitals are Credit & Decrease in Capitals are Debit.
• Increase in Liabilities are Credit & Decrease in Liabilities are Debit.
• Increase in Income & Gain is Credit and Decrease in Income & Gain is Debit.
• Increase in Expenses & Losses are Debit and Decrease in Expenses & Losses are Credit.

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## FAQs on Accounting Equation and Its Approach

### What is the other name of the Accounting Equation?

It is also called the Basic Accounting equation or Balance Sheet equation.

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