As it is clear from the name of the topic, when we expand the standard accounting equation further, it is called Expanded Accounting Equation. In this form of equation, we only play with equity portion and leave the assets and liabilities as it is.
The expanded form varies greatly according to the nature or type of the business concern. Following are the equations for different types of entities:
Corporation
Assets = Liabilities + Issued, Paid up, subscribed Capital – Treasury Stock + Incomes – Expenses – Dividends
For sole proprietorship
Assets = Liabilities + Owner Capital + Incomes – Expenses – Withdrawals
Purpose
The purpose of expanded equation is to create a link between income statement and balance sheet which the standard form hardly discloses. This enables the financial analyst to see the impact of changes over the income and expenses items over the balance sheet and over the whole accounting system. Financial analyst often takes the support of this expanded equation to do the What is analysis.
