The Fundamental Accounting Equation is the cornerstone of accounting and is represented as:

Assets = Liabilities + Equity

This equation indicates that a company's assets must always equal its liabilities plus its equity. Assets are the resources owned by a company, such as cash, inventory, and property. Liabilities are what the company owes to others, such as loans and accounts payable. Equity is what is left over after liabilities are subtracted from assets and represents the owner's share in the company.

Revenue and Expenses

Revenue is the income a company generates from selling its products or services, while expenses are the costs incurred by the company in order to generate revenue. Both revenue and expenses are related to the fundamental accounting equation in the following ways:

- Revenue increases equity: When a company sells its products or services, it generates revenue. This revenue increases the company's equity, which is the owner's share in the company. Therefore, revenue is added to the equity side of the equation.

- Expenses decrease equity: Expenses are costs incurred by the company in order to generate revenue. These costs decrease the company's equity, as they reduce the owner's share in the company. Therefore, expenses are subtracted from the equity side of the equation.

In summary, the fundamental accounting equation serves as the basis for all accounting transactions and ensures that a company's financial statements are accurate and balanced. Revenue and expenses are integral to the equation, as they affect the company's equity. By understanding the relationship between revenue, expenses, and the fundamental accounting equation, companies can make informed financial decisions and maintain a healthy financial position.

Asset = Equity+Liability. Expenses are related to Asset. When a firm apply the funds it may get an asset if it can derive economic benefit out of it for more than 1 year and benefit can be reliably measured. Income may relate to Equity+Liability. When a firm source the fund it is liable either to owner or outsider. When a firm generates profit out of revenue it is liable to transfer that revenue profit to the owners and fund providers.