Impressive Liability Equals Assets Plus Equity
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The income statement is the financial statement that reports a companys revenues and expenses and the resulting net income.
Liability equals assets plus equity. In double entry this relationship is well defined when we say AssetsLiabilities Owners Equity. Assets Liabilities Equity Accountants call this the accounting equation also the accounting formula or the balance sheet equation. The balance sheet equation also known as the accounting equation is Assets Liabilities Equity.
It proves that assets including all stock debtors prepaid etc. Hence the difference is called. Assets are equal to liabilities plus equity because that is what happens in the real world.
Assets Liabilities Equity And turn it into the following. And any difference is owners equity In other terms Net Profit initial capital from owner Means anything under business property - anything business have to pay will be Owners Equity. Total assets will always equal total liabilities plus total equity.
Accounting describes this it does not determine this truth. Total assets always equals total liabilities and shareholders equity. For instance lets say a lemonade stand has 25 in assets and 15 in liabilities.
At the end of the day if you take all the assets of the business and deduct the amount of money that business owe to others the residual amount belongs to the owner of the business because it is his business. Next liabilities are subtracted the same as expenses and taxes is subtracted in an income or profit equation and youre left with the net result your total assets. It has nothing to do with obeying arbitrary accounting laws.
Should be equal to all of your creditors equity balance and long term liabilities. Lets take the equation we used above to calculate a companys equity. Equity is nothing but owners funds.
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