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
You may have noticed that accountants don’t like negative numbers, and they don’t like to do subtraction. They even write negative numbers funny (like this).
So they write the equation in the only way that doesn’t need to include a subtraction, or an admission that liabilities are just negative assets.
A mathematician would probably write it as Assets – Liabilities – Equity = 0
They also like to balance equations by adding the same amount to both sides of the equals sign, rather than adding some amount to one term and subtracting the same amount from another term on the same side. In other words, they like assets and liabilities (or debits and credits) to be on opposite sides of an equals sign.
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