Accounting equation examples

The accounting equation: A equals L plus E. Assets equal liabilities plus equity.
Let’s practice the accounting equation with some real world examples. The real world of beer and pizza!

⏱️TIMESTAMPS⏱️
00:00 Accounting equation definition
00:18 Accounting equation example 1
01:16 Completing the accounting equation
01:40 Calculating liabilities in the accounting equation
02:35 Accounting equation example 2
03:32 Calculating equity in the accounting equation

Let’s start with the biggest beer company in the world, AB InBev, or Anheuser Busch InBev, as the first example.
To fill in the accounting equation, we need to collect data from the balance sheet. Assets, what the company owns, o w n, on the left. Liabilities and equity, what the company owes, o w e, on the right. Total assets, on the bottom left, 206.6 billion dollars. The total liabilities number (what is owed to third parties) is not explicitly stated, we need to calculate it by adding up non-current liabilities and current liabilities. 84.9 billion dollars plus 33 billion dollars is 117.9 billion dollars.
Total equity (what is owed to shareholders) is 88.7 billion dollars.
We are ready to fill in the accounting equation for AB InBev! $206.6B = $117.9B + $88.7B. We were able to collect the asset number, and the equity number, directly from the balance sheet. The liabilities number we had to calculate. What if the liabilities number is not given in a problem you need to solve?
If assets and equity are known, then we can calculate liabilities by rearranging the accounting equation. We will move the E of equity from the right of the “equal to” sign to the left. A equals L plus E, becomes A minus E equals L. Let’s move the L to the front. L equals A minus E. Liabilities equal assets minus equity. Out comes the calculator: $206.6B minus $88.7B equals $117.9B.
That’s the accounting equation for our AB InBev example completed in two ways.

Beer done! Time for pizza. More specifically: Domino’s Pizza as the second example.
To fill in the accounting equation, we need to collect data from the balance sheet.
Assets 1.7 billion dollars.
Liabilities 5.7 billion dollars.
Equity negative 4 billion dollars. Finance people have the habit of putting negative numbers between brackets, rather than putting a minus in front of them.
We are ready to fill in the #accountingequation for Domino’s Pizza! $1.7B = $5.7B + negative $4B. Adding a negative number is the same as subtracting a positive number.
We were able to collect the asset number, the liabilities number, and the equity number, directly from the balance sheet. What if the equity number is not given in a problem you need to solve?
If assets and liabilities are known, then we can calculate equity by rearranging the accounting equation. We will move the L of liabilities from the right of the “equal to” sign to the left.
A equals L plus E, becomes A minus L equals E. Let’s move the E to the front. E equals A minus L. Equity equals assets minus liabilities. Out comes the calculator: $1.7B minus $5.7B equals negative $4B. That’s the accounting equation for our Domino’s Pizza example completed in two ways.
I hope these real world accounting equation examples were useful for you!

Philip de Vroe (The Finance Storyteller) aims to make #accounting , finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary of #accounting101 and join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In!

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