• There are 5 elements of the financial statements: assets, liabilities, equity, revenue, and expenses
• The accounting equation shows the relationship between assets, liabilities, and equity
• Assets = Liabilities + Equity
• Each accounting transaction impacts both sides of the accounting equation
  • The equation must always BALANCE

A second accounting equation shows the relationship between revenues and expenses

Revenues – Expenses = Net Income (Net Loss)

Since net income increases equity, we can also say that revenue increases equity and expenses decrease equity