Accounting

We answer your accounting questions.

Over 500 questions have been answered on our accounting blog. Click here to suggest a question.



March 7, 2007

What is the expanded accounting equation?

The expanded accounting equation replaces Owner’s Equity in the basic accounting equation (Assets = Liabilities + Owner’s Equity) with the following components: Owner’s Capital + Revenues - Expenses - Owner’s Draws. In other words, the expanded accounting equation for a sole proprietorship is: Assets = Liabilities + Owner’s Capital + Revenues - Expenses - Owner’s Draws.

In the expanded accounting equation for a corporation, Stockholders’ Equity in the basic accounting equation (Assets = Liabilities + Stockholders’ Equity) is replaced by these components: Paid-in Capital + Revenues - Expenses - Dividends - Treasury Stock. The resulting expanded accounting equation for a corporation is: Assets = Liabilities + Paid-in Capital + Revenues - Expenses - Dividends - Treasury Stock.

The expanded accounting equation allows you to see separately (1) the impact on equity from net income (increased by revenues, decreased by expenses), and (2) the effect of transactions with owners (draws, dividends, sale or purchase of ownership interest).

Learn about the Accounting Equation.

Related Posts



Comments

7 Responses to “What is the expanded accounting equation?”

  1. munna on April 3rd, 2008 8:39 am

    Thanks Accounting Coach.

  2. Akpan Juliet on May 13th, 2008 4:03 pm

    i just like this programe

  3. kate on August 14th, 2008 1:22 pm

    it inspire me a lot the lesson is rely interesting. i love the studying. thanks you Accounting coach

  4. kate on August 14th, 2008 1:26 pm

    the expanding accounting equation of a sole properitor is Asset=Liabilities+owner’s Capital +revenue _ expenses_ owner Drawing.

  5. lupita on January 21st, 2009 2:52 pm

    how would you put this in a standard accounting equation.

    1. invested 19000 cash in business
    2. bought equip for cash 3000
    3. bought addtl equip on acct 2000
    4. pt 300 csh to reduce # 3

  6. Onisen on March 17th, 2009 10:35 am

    Willing to join

  7. Susan on June 2nd, 2009 4:18 pm

    I do not understand how revenue earnings fit into the expanded equation? Could you please explain how this fits into the equation?

Leave a Reply