I am taking a “finance for non-finance managers” mini training for my job (so I can better understand the corporate nonsense jargon presented during quarterly meetings), but I’m already stuck on the first part of the training, which is about the “accounting equation”.
The equation in the training is listed as Assets = Liabilities + Owner’s Equity.
Why is this equation written this way? It doesn’t make sense. A company has assets, and it owes liabilities. Whatever *is left over* is equity. So shouldn’t it be written as:
**Assets – Liabilities = Owner’s Equity**
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I understand, mathematically, that it’s all the same thing. But as far as messaging goes (syntax, context, etc), why would the equation be specifically written in this way?
In: Economics
The basic structure of accounting was invented by people who carefully structured the entire system so that they could always add values and compare sums, they never subtract them.
The basic identity compares the two halves of the balance sheet the sum of Assets equals the sum of Liabilities plus the sum of owners equity.
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