What is accounting, accounting equation?

How is the accounting equation true?

• The accounting equation is: Assets = Liabilities + Equity How is this true? This equation doesn't include income. If all my assets came from capital contributions, then it would be true. But what happens if I sell something? Those sales transactions involve placing money in my checking account, and are balanced out by adding the same to my income account.. Equity was never touched in this transaction. What am I doing wrong? CREDIT: Assets & Expenses DEBIT: Liabilities, Income, & Equity You see, income & equity are two separate categories on the credit side. So how does income get represented in equity, to make the accounting equation true??

• Answer:

  Equity actually includes income (revenue) and expenses, not just capital contributions. An increase in income is an increase in equity, and an increase in expenses is a decrease in equity. http://en.wikipedia.org/wiki/Accounting_equation Assets = Liabilities + Stockholders' Equity Assets = Liabilities + Contributed Capital + Retained Earnings Assets = Liabilities + Contributed Capital + Net Income - Dividends Assets = Liabilities + Contributed Capital + Income - Expenses - Dividends