Expanded Accounting Equation for a Sole Proprietorship

The owner's equity in the basic accounting equation is sometimes expanded to show the accounts that make up owner's equity: Owner's Capital, Revenues, Expenses, and Owner's Draws.

Instead of the accounting equation, Assets = Liabilities + Owner's Equity, the expanded accounting equation is:

14x-simple-table-11a

The eight transactions that we had listed under the basic accounting equation Transaction 8, are shown in the following expanded accounting equation:

14X-table-31

With the expanded accounting equation, you can easily see the company's net income:

14X-table-32

Expanded Accounting Equation for a Corporation

The stockholders' equity part of the basic accounting equation can also be expanded to show the accounts that make up stockholders' equity: Paid-in Capital, Revenues, Expenses, Dividends, and Treasury Stock.

Instead of the accounting equation, Assets = Liabilities + Stockholders' Equity, the expanded accounting equation is:

14x-simple-table-11b

The eight transactions that we had listed under the basic accounting equation Transaction C8 are shown in the following expanded accounting equation:

14X-table-33

With the expanded accounting equation, you can easily see the corporation's net income:

14X-table-32

Please Note...

You should consider our materials to be an introduction to selected accounting and bookkeeping topics, and realize that some complexities (including differences between financial statement reporting and income tax reporting) are not presented. Therefore, always consult with accounting and tax professionals for assistance with your specific circumstances.