Accounting identity

In accounting, finance and economics, an accounting identity is an equality that must be true regardless of the value of its variables, or a statement that by definition (or construction) must be true.^[1]^[2] Where an accounting identity applies, any deviation from numerical equality signifies an error in formulation, calculation or measurement.^[3]

The term accounting identity may be used to distinguish between propositions that are theories (which may or may not be true, or relationships that may or may not always hold) and statements that are by definition true. Despite the fact that the statements are by definition true, the underlying figures as measured or estimated may not add up due to measurement error, particularly for certain identities in macroeconomics.^[4]

^ "Principles of Microeconomics", Mankiw et al., pp. 211-212, 2002
^ "Macroeconomics [Canadian Edition]", Mankiw & Scarth, p. 25, 2004
^ Suranovic, "International Finance Theory and Policy": "It is important to note that this relationship is an accounting identity. This means that the relationship must be true as long as all variables are measured properly."
^ See, for example, Suranovic, "International Finance Theory and Policy": "In practice, this identity rarely adds up, however, because the variables are not typically measured accurately."

[1] "Principles of Microeconomics", Mankiw et al., pp. 211-212, 2002

[2] "Macroeconomics [Canadian Edition]", Mankiw & Scarth, p. 25, 2004

[3] Suranovic, "International Finance Theory and Policy": "It is important to note that this relationship is an accounting identity. This means that the relationship must be true as long as all variables are measured properly."

[4] See, for example, Suranovic, "International Finance Theory and Policy": "In practice, this identity rarely adds up, however, because the variables are not typically measured accurately."

[1]

[2]

[3]

[4]