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  1. The accounting equation is a fundamental concept in accounting. It states that Assets = Liabilities + Shareholder’s Equity1. The three elements of the accounting equation are:
    1. Assets: These are the resources owned by a company.
    2. Liabilities: These are the company's debts or obligations.
    3. Shareholders’ Equity: This represents the ownership interest in the company2.
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        What is the accounting equation?
        The accounting equation is the unifying concept in accounting that shows the relationships between and among the accounting elements: assets, liabilities, and capital. Before taking this lesson, be sure to be familiar with the accounting elements. The basic accounting equation is: Assets = Liabilities + Capital

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        The accounting equation shows the relationship between assets, liabilities and equity. It is the basis upon which the double entry accounting system is constructed. Business transactions must be recorded in accordance with the accounting equation, to ensure that each part of a journal entry is correct.

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