Expanded Accounting Equation Explained

November 23, 2021


The third and fourth items represent the income and expenses for the year. Substituting for the appropriate terms of the expanded accounting equation, these figures add up to the total declared assets for Apple, Inc., which are worth $329,840 million U.S. dollars. The expanded accounting equation is the same as the common accounting equation but decomposes equity into component parts. The expanded accounting equation can be rearranged in many ways to suit its use better.

What Is the Expanded Accounting Equation?

The expanded accounting equation is a form of the basic accounting equation that includes the distinct components of owner’s equity, such as dividends, shareholder capital, revenue, and expenses. The expanded equation is used to compare a company’s assets with greater granularity than provided by the basic equation.

Is the Fees Earned account classified as an asset, a liability, an owner’s equity, a revenue, or an expense account? Understand what the accounting equation is, learn the elements of the basic accounting equation, and see examples. Notes receivable is similar to accounts receivable in that it is money owed to the business by a customer or other entity. An automated accounting system is designed to use double-entry accounting. When you review each entry and the trial balance, you can make sure that total debits equal total credits, and that the accounting equation holds true. When using the Expanded Accounting Equation, include all elements of the owner’s equity or stockholder’s equity, including gains, losses, and other accumulated comprehensive income, if applicable.

Rearranging the Expanded Accounting Equation Formula

Nuncio Consulting completed the following transactions during June. Armand Nuncio, the owner, invested $35,000 cash along with office equipment valued at $11,000 in the new company in exchange for common stock. The company paid $10,050 cash to settle the payable for the office equipment purchased in transaction c. The accounting equation is useful because it provides a concise representation of a company’s multi-item, complex balance sheet.

The equity refers to the equities for both the business and its owners. Because the business and its owners are considered separately by the dual entity concept.

There are six different account categories in modern accounting:

Breaks down the equity portion of the accounting equation into more detail. This expansion of the equity section allows a business to see the impact to equity from changes to revenues and expenses, and to owner investments and payouts.


It is http://businesstest.ru/PressRelease/PressReleaseShow.asp?id=739048 a Balance Sheet statement because it uses the Expanded Accounting Equation to calculate the equality between property and ownership. These two values must balance one another or a mistake would have been made. In the Expanded Accounting Equation, every cent of property and ownership must be accounted for and must equal one another. The dividend could be paid with cash or be a distribution of more business shares to current shareholders. A notes payable is similar to accounts payable in that the business owes money and has not yet paid.


The company owing the product or service creates the liability to the customer. Accounts payable recognizes that the company owes money and has not paid.

  • The sum of all assets equals the sum of all liabilities and capital.
  • The expanded accounting equation allows you to see separately the impact on equity from net income , and the effect of transactions with owners .
  • You can also see the effect that transactions performed by the company’s owners/shareholders (like an owner’s draw or the issuing of dividends) has on net income.
  • The expanded accounting equation can be rearranged in many ways to suit its use better.
  • The service revenue and accounts receivable have been increased due to service provided on credit.
  • And both are equal to the sum of liabilities and owner’s equity.

The expanded accounting equation is more detailed than the basic accounting equation. It is expanded by the elements that influence the owner’s equity or stockholder’s equity. The owner’s investments in the business typically come in the form of common stock and are called contributed capital. There is a hybrid owner’s investment labeled as preferred stock that is a combination of debt and equity .

Financial Statements , Types, & Examples

In this case, the 2 http://www.citizensbankdelphos.com/2011/12/ lie on the opposite sides of the accounting equation. Stockholder EquityA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company’s owners, but their liability is limited to the value of their shares. A stockholder is a person, company, or institution who owns one or more shares of a company. Treasury StockTreasury Stock is a stock repurchased by the issuance Company from its current shareholders that remains non-retired. Moreover, it is not considered while calculating the Company’s Earnings Per Share or dividends.

It involves accounting methods and practices determined at the corporate level. Includes information from the balance sheet and provides information about the income-expenditure statement.

Posted in Bookkeeping
Write a comment