Expanded Accounting Equation

Expanded accounting equation, as the name implies, is an expanded form of the standard accounting equation and it shows components of owner's equity such as paid-in capital, dividends, incomes, expenses etc. Expanded accounting equation does not expand assets and liabilities further. It helps to understand the relationship between balance sheet and income statement because it combines figures from both of the financial statements.

It is important to note that the components of equity differ between sole proprietorships, partnerships and companies. Therefore the expanded accounting equation is also different for different forms of business. For example, a corporation will use:

Assets = Liabilities + Paid-in Capital - Treasury Stock + Incomes - Expenses - Dividends

For sole proprietorship, it will be:

Assets = Liabilities + Owner Capital + Incomes - Expenses - Withdrawals

Expanded accounting equation can be used in the form of a table to record transactions of a business as shown in the example below:

Example

Note: We have used the transactions from the journal entries page here.

Date Assets =Liabilities +Paid-in Capital +Income Expenses Dividends
Jan 1 +100,000 = ++100,000 +
Jan 2 +36,000
−36,000
= + +
Jan 3 +80,000
−60,000
=+20,000 + +
Jan 4 −17,600 =−17,600 + +
Jan 13 +28,500 = + ++28,500
Jan 13 −17,600 = + +
Jan 14 −19,100 = + + +19,100
Jan 18 +32,900
+21,200
= + ++54,100
Jan 23 +15,300
−15,300
= + +
Jan 25 +4,000 =+4,000 + +
Jan 26 +5,200 =+5,200 + +
Jan 28 −19,100 = + + +19,100
Jan 31 −5,000 = + + +5,000
Jan 31 =+2,470 + + +2,470
Jan 31 =+1,494 + + +1,494
Jan 31 −3,470 = + + +3,470

Summing the each of the column in the above table, we get:

147,530 = 15,564 + 100,000 + 82,600 − 45,634 − 5,000
147,530 = 147,530

Written by Irfanullah Jan