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Lesson 1: Introduction to Accounting and Business
The Basic Accounting Equation
The basic accounting equation is the foundation for all accounting techniques. It is essential that you understand its effect on transactions and financial statements. Accounting attempts to measure the effect of transactions on the three basic elements of every business entity:
- assets, or what the company owns or has rights to;
- liabilities, or what the company owes; and
- owner’s equity (abbreviated OE and also known as stockholders' equity).
The basic accounting equation, shown in Figure 1.4, shows the relationship among these elements.
