|WikiProject Business / Accounting||(Rated Stub-class)|
Zero net assets
The accounting equation as expressed here and in most textbooks is wrong mathematically. As expressed, it can only be true when the company has zero net assets.
The incorrect expression is;
Assets = Liabilities + Owner's Equity
the correct expression is;
Assets + Liabilities + Owner's Equity = 0
since Liabilities and Owner's Equity have a credit balance, they cancel out the debit balance of the Assets and the result is zero. The three terms form a partition of all of the non-zero balances in the general ledger at the time that the books are closed. Since the general ledger must have a balance of zero by the very definition of double-entry bookkeeping, the three terms of the partitioning must have a summed balance of zero also. The traditional expression of the accounting equation states that the books would have a non-zero balance if the Assets are non-zero.
- The logic is sound, but a premise is faulty; a normal debit balance and a normal credit balance are still both positive.
Merger is being discussed at Talk:Accounting identity EnviroGranny 17:19, 15 April 2007 (UTC) Shows changes in equity of the owner/s in a specific time — Preceding unsigned comment added by 22.214.171.124 (talk) 05:18, 13 June 2011 (UTC)
- Accounting Equation Explanation with Examples
--Foggy Morning 03:13, 30 June 2007 (UTC)
- I found where it's used in the text. I'm linking it as a reference. --Foggy Morning 20:21, 8 July 2007 (UTC)
Better description of the Equation
I believe that the following wikipedia link better describes the equation and should be merged into this page:
Double-entry_bookkeeping_system#Debits_and_credits —Preceding unsigned comment added by 126.96.36.199 (talk) 06:25, 11 January 2009 (UTC)