The accounting equation is a fundamental principle in accounting that represents the relationship between a company's assets, liabilities, and owner's equity. It is expressed as:

Assets = Liabilities + Owner's Equity

Assets refer to the resources owned by a company that have future economic value. These can include cash, inventory, buildings, equipment, and accounts receivable.

Liabilities, on the other hand, represent the company's obligations or debts to external parties. These can include loans, accounts payable, and accrued expenses.

Owner's equity, also known as shareholders' equity or net worth, represents the residual interest in the company's assets after deducting liabilities. It is the owner's claim on the company's assets and is comprised of the initial capital investment plus retained earnings.

Let's consider an example:

Company XYZ has the following financial information:

Assets: $100,000

Liabilities: $40,000

Owner's Equity: $60,000

Using the accounting equation, we can verify its accuracy:

$100,000 (Assets) = $40,000 (Liabilities) + $60,000 (Owner's Equity)

As the equation balances, we can conclude that the financial information is accurate.

References:

1. Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Financial Accounting: Tools for Business Decision-Making. Wiley.

2. Horngren, C. T., Sundem, G. L., Elliott, J. A., & Philbrick, D. R. (2018). Introduction to Financial Accounting. Pearson.