The differentiating factor is equity, which reflects the owners\u2019 stake in the business after all liabilities have been settled. Valid financial transactions always result in a balanced accounting equation which is the fundamental characteristic of double entry accounting (i.e., every debit has a corresponding credit). Because it considers assets, liabilities, and equity (also known as shareholders\u2019 equity or owner\u2019s equity), this basic accounting equation is the basis of a business\u2019s balance sheet. Additionally, it lays the foundation for a double-entry bookkeeping system, which ensures that every financial transaction is recorded in two places and that the company\u2019s books always stay balanced. On the balance sheet, the accounting equation gives a clear view of financial health by showing how much the company owes and what it owns. As you can see, no matter what the transaction is, the accounting equation will always balance because each transaction has a dual aspect.<\/p>\n