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BASIC ACCOUNTING EQUATION OR FORMULA

in a nutshell, the accouting equation above

shows us how much of the assest are

owned by the owner (equity) and

how much are owed to

others (liabilities)

ASSEST

Assets are possessions of the business. They are things that add value to the business and will bring it benefits in some form. For example, furniture, machinery, vehicles, computers, stationery or cash.

Liabilities

Liabilities are basically debts. The amount of liabilities represents the value of the business assets that are owed to others. It is the value of the assets that people outside the business can lay claim to.

Equity

Equity, or owner's equity, is the value of the assets that the owner owns. It is the value of the business assets that the owner can lay claim to.