The accounting equation

As we have seen, we find the value of the owner's interest (known as capital or equity) by deducting liabilities from assets. This equation can be represented in a number of different ways (for simplicity, we shall assume

that assets exceed liabilities):

Assets - Liabilities = Capital

Non-current Assets + (Current Assets) - (Current Liabilities

+ Non-current Liabilities) = Capital

(Non-current Assets + Current Assets - Current Liabilities)

- Non-current Liabilities= Capital

This final version of the accounting equation is the one usually followed by accountants in the UK when preparing the financial summary of assets, liabilities and capital, which is known as a balance sheet.