Accounting

Our
Report is
Equation

The
The
Accounting
Accountin
Equation
about..

The accounting equation states that:

Assets= Liabilities + Owners

Equity
Liabilitie
s
Asset

Owner
s
equity

This formula for balancing accounts

dates back to before the Italian
Renaissance, when accountants used a
similar equation to keep track of
accounts. Though this is the earliest
documented evidence of accounting
equations and bookkeeping balances;
many historians believe that other
Arab and Muslim cultures employed
these practices first, later sharing it
with Italian traders with whom they
conducted business.

origination

Today, the assets determined by this accounting

equation formula are made up of a business's
various holdings., these assets typically include
the money invested by an owner or creditor.
Businesses that have been up and running for a
longer period of time will count any additional
gains, contributions, and revenue as assets.
These might include cash, accounts receivable,
insurance, land, equipment, and inventory.
According to the accounting equation, these
must be equal to the liabilities and equity.

Assets

Capital, otherwise known as equity, can

belong to a company owner or shareholder
(often, the owner is also an investor in a
company). This capital is essentially the
leftover profit after liabilities have been
subtracted from assets, and is otherwise
known as the company's net income or
retained earnings. Capital can also refer to
the money owed to a company owner or
shareholder; in the case of an outside
investment for a company start-up, equity
and liability would be equal.

Capital

Liabilities amount to a company's debts

and debits-money a business owes to
others, from creditors to employees. For
example, these might include cash
purchases for goods or services (otherwise
known as accounts payable), salaries,
dividends, losses, or loan interest
payments. These are either categorized as
long-term or short-term liabilities; in the
former case, they must be paid back in
less than one year. In many cases, such as
that of hiring employees or purchasing

Liabilities

Balance Sheet Basics

and the Accounting
Equation
One type of accounting report is a balance
sheet, which is based on the accounting
equation:Assets=Liabilities+Owners
Equity.
A balance sheet shows two sides of the
business:
Assets:On one side of the balance sheet
theassetsof the business are listed, which
are the economic resources owned and being
used in the business.
Sources of assets:On the other side of the

he income statement
Where the balance sheet shows the financial
position at a point in time, the income statement
shows the change in equity as a result of
expenses and revenues (equity can also change
for example as a result of issuing shares,
repurchasing shares, and paying dividends).
Hence, the income statement shows
theperformanceof the firm over some period. In
public financial reports, this period typically is a
quarter or a year. Within the firm monthly
reporting is common practice as well. The income
statement is used to assess profitability, as the
expenses for the period are deducted from the

End