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:

The eight transactions that we had listed under the basic accounting equation for a sole proprietorship Transaction 8 (Part 5) are shown in the following expanded accounting equation:

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

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:

The eight transactions that we had listed under the basic accounting equation for a corporation Transaction C8 (Part 11) are shown in the following expanded accounting equation:

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