<p>The accounting equation, <span class="math math-inline"><span class="katex"><span class="katex-mathml">Assets=Liabilities+Equity</span><span class="katex-html"><span class="base"><span class="mord text"><span class="mord">Assets</span></span><span class="mrel">=</span></span><span class="base"><span class="mord text"><span class="mord">Liabilities</span></span><span class="mbin">+</span></span><span class="base"><span class="mord text"><span class="mord">Equity</span></span></span></span></span></span>, forms the foundation of double-entry bookkeeping. It represents the relationship between a companys assets, liabilities, and owners equity. For example, if a company purchases equipment worth $5,000 by paying $2,000 in cash and taking out a loan for the remaining $3,000, the equation reflects this as an increase in assets (equipment) by $5,000, a decrease in assets (cash) by $2,000, and an increase in liabilities (loan) by $3,000. The new accounting equation is $5,000 (equipment) = $3,000 (loan) + $2,000 (equity).</p>