The wider form of the accounting equation that includes in addition to assets, liabilities, and equity (capital) other items mainly related to the statement of income (SOI) (that is, revenue and expenses) and profit distribution (i.e., drawing or dividends). In equation form, the expanded accounting equation is defined as follows:
Assets = equity + liabilities + revenue – expenses – dividends
In shorthand, and by re-arranging of the above items:
A = L + (C – D) + (R – E)
Where: A, L, C, D, R, and E stand for assets, liabilities, capital, drawing/ dividends, revenue, and expenses, respectively.
In other words, the expanded accounting equation is equivalent to the basic accounting equation, but with particular adjustment for income and profit distribution items on the right-hand section (liability and equity side). This type of accounting equation is designed for easier analysis of accounting transactions and events.
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