The accounting equation

What students must be able to do

• Define assets, liabilities and owner's equity.
• State the accounting equation and rearrange it.
• Use the equation to show how a transaction changes the financial position.

Official wording: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), page 11; Cambridge IGCSE Accounting 0452: syllabus for examination in 2026 (Version 2, December 2025), page 11. See all sources.

How our teachers teach it

The equation says that what a business owns equals what it owes to outsiders plus what it owes to its owner. Our teachers have students apply it to one transaction at a time and watch both sides move together. That habit is exactly what double entry formalises in section 2. It is also the fastest way to find a missing figure when a statement of financial position refuses to balance.

Mini-example: three transactions, two sides

Start a business with RM10,000 paid in by the owner. Assets (cash) are RM10,000 and the owner's capital is RM10,000, so the equation balances.

Next the business buys equipment for RM3,000 on credit. Assets rise to RM13,000, made up of RM10,000 cash and RM3,000 equipment. The new claim is a liability of RM3,000 to the supplier, so the equation reads RM13,000 = RM3,000 + RM10,000.

Then the business pays RM1,000 of that debt from cash. Cash falls to RM9,000 and the liability falls to RM2,000, so assets of RM12,000 equal liabilities of RM2,000 plus capital of RM10,000. Each transaction moved both sides, and the totals stayed equal.

Rearranging gives capital = assets - liabilities, which is how you find a missing figure: RM12,000 less RM2,000 leaves RM10,000 of owner's equity. A statement of financial position lays out exactly this picture.

If any of these slips sound familiar, we can help. A teacher can mark your child's answers on the accounting equation line by line and show where the marks go. Book a trial class.

Unchanged between 2026 and 2027

The official wording of this sub-topic is essentially the same in both syllabuses, so students on either version can prepare in the same way.

Where it is examined

The accounting equation can appear in either paper, as a short question or as part of a longer task. Cambridge bases both papers on the whole syllabus. See the guides to Paper 1 and Paper 2 for the format.

Sources: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), pages 9, 22. See all sources.

Practise it

• Key terms: Accounting equation, Asset, Liability, Capital
• Skills: How to prepare a statement of financial position
• Layouts: Statement of financial position format
• Practice questions: the accounting equation
• One-to-one Cambridge 0452 tuition

Other sub-topics in topic 1

• 1.1 The purpose of accounting