A: The main purpose of the basic accounting equation is to show the real-life financial condition or position for a business.

The basic accounting equation shows that a business is composed of useful items (assets), which are owned by the owner or owners (equity), and that there are certain business debts (liabilities), in other words the assets are partly owned and partly owed to people outside the business.

Different people are interested in the financial position of the business for different purposes. I describe these different people on this page on accounting reports.

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