What are the advantages of accounting equation?

The advantages of accounting equation are as follows:

  • It shows owner’s equity, outsiders’ equity and assets. If two things are given the other can be known by applying the equation.


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  • Accounting equation reveals the success or failure of a business. If owner’s equity decreases, it implies failure and in reverse case there is success.
  • It shows the impact of each transaction on owner’s equity, liability and assets.
  • Accounting equation if presented item wise, it helps to calculate various ratios such as, capital to total assets, liability to total assets, current assets to fixed assets, current liability to current assets etc. which help a lot in taking important decisions.
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