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 Assets = Liabilities + Equity is also known as the accounting formula and is the universal accounting formula of all balance sheets. It demonstrates that the amount of resources of a company should always be equal to the aggregate claims of the creditors and owners. The formula makes sure that all the transactions are done properly, since the alteration of one side has to be accompanied by the alteration of the other. This is what makes it an inherent error-checking system of the system of double-entry accounting. The accounting formula is important in that it enables accountants to classify accounts and analyze transactions correctly and create financial statements that are coherent and dependable. It gives a basic but with effective structures of comprehension of financial situations and financial performance.

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