Accounting identity

Okay little buddy, imagine that you are a cookie seller and you want to keep track of how much money you make from selling cookies. You have three numbers to work with: how many cookies you sell, the price of each cookie, and the total amount of money you make.

Now, imagine that one day you sold 10 cookies for $1 each. You understand that selling all ten of these cookies means you made $10, right? This is where the accounting identity comes in! The accounting identity helps you understand that these three numbers are related in a certain way all the time.

Here's how the accounting identity works:

The amount of money you make, or your total revenue, will always be equal to the number of cookies you sell multiplied by the price of each cookie. So, in our example, the accounting identity would look like this:

Total Revenue = Number of Cookies Sold x Price per Cookie

or

$10 = 10 cookies x $1 each

This is the accounting identity! It is a special relationship that always holds true in the world of business and accounting. By understanding the accounting identity, you can make sure your records are accurate and that you know exactly how much money you are bringing in for selling your delicious cookies.