Can someone explain this basic accounting principle to me?

Question

Here is the accounting principle:
Assets = Liabilities+ Stockholders' Equity
Please explain this briefly in simple terms.

Answer 1

Liabilites are what you owe, your stockholders equity is what you earn or have monetary credit with so you add your equity and liabilites to find out what your assets or your worth is.

Answer 2

Assets = Liabilities+ Stockholders' Equity

Assets are anything that you or the company owns that has any value. This would include money, equipment, land, accounts receivable, vehicles, etc.

Liabilities include things that you or the company is responsible for or owe out. For example, this would include accounts payable, expenses, etc.

Owner's equity is the owner's right to the assets after the total liabilities are deducted. Owner's equity includes things like capital (the initial investment into the business).

This is known as the accounting equation. These three parts will make a balance sheet. You might see it as "Assets = Liabilities+ Stockholders' Equity" or "Assets - Liabilities = Stockholders' Equity". It accomplishes the same purpose.

If this doesn't help, let me know if there is something specifically I can clarify. If you are taking your first accounting class, I can tell you that this will become perfectly clear very soon for you because just about everything revolves around this equation.

Answer 3

Basically, what you are asking is the function of the Balance Sheet.
Whereby, Total Assets must equal Total Liabilities + Shareholder's Funds (Equity).
Shareholders' Funds are considered a liability to the company because the company "owes" the shareholders the equity (capital) that they put into the business.
For information, Equity is not only capital or shareholdings, it also includes Profit. So profit is also a liability to the company, since the company "owes" the profit to the shareholders.
The distinction between the shareholders and the company must be made very clearly, as they are 2 distinct legal entities.

Answer 4

THE FUNDAMENTAL ACCOUNTING EQUATION
Assets = Liabilities + Owners' Equity

ASSETS: Assets are the economic resources of the entity, and include such items as cash, accounts receivable (amounts owed to a firm by its customers), inventories, land, buildings, equipment, and even intangible assets like patents and other legal rights and claims.

LIABILITIES: Liabilities are amounts owed to others relating to loans, extensions of credit, and other obligations arising in the course of business.

OWNERS' EQUITY: Owners' equity is the owner's "interest" in the business. It is sometimes called net assets, because it is equivalent to assets minus liabilities for a particular business.

Answer 5

In simple terms - if you sold all of your assets and paid off all of your bills, what's left over is your equity.

Answer 6

They are a set of rules for preparing financial statements (to assure you don't fudge the numbers). They are actually quite complicated.

Answer 7

plus...dont worry about a thing