State and explain the Accounting Equation                                                         (4marks)

The Accounting Equation is a fundamental principle in the field of accounting. It is represented as:

Assets = Liabilities + Owner's Equity

1. Assets: These are resources owned by a business which are expected to provide future benefits. They include things like cash, inventory, buildings, and equipment.

2. Liabilities: These are obligations that a business owes to others. They include things like loans, accounts payable, and mortgages.

3. Owner's Equity: This is the owner's financial interest in the business. It is calculated as the difference between assets and liabilities. It includes things like capital, retained earnings, and drawings.

The Accounting Equation ensures that a company's financial statements are always balanced. It provides the structure for the double-entry bookkeeping system where each entry has a corresponding and opposite entry to a different account. For example, if a company borrows money from a bank, its assets (cash) will increase and its liabilities (bank loan) will also increase by an equal amount, keeping the equation in balance.