Financial Accounting liabilities
- Liabilities:
What a company owes. - Owners' Equity:
Claims of owners against the business.
The basic equation that expresses the relationship of assets and claims on assets is called the accounting equation:
Assets = Liabilities + Owners' Equity
Some basic assets and claims on assets are listed below.
Assets
Cash
Inventories
Buildings
Land
Equipment
Accounts Receivable
Marketable Securities
Claims on Assets
Liabilities
Accounts Payable
Wages Payable
Taxes Payable
Notes Payable
Bonds Payable
Intermediate Term Debt
Owners' Equity
Preferred Stock
Common Stock
Capital Surplus
Retained Earnings
In other words, the equation illustrates that the assets of the company must equal the claims against the company. Those claims arise from both creditors of the company and owners of the company.
Using the accounting equation, if two of the three components are known, the third can be solved. For instance:
| Assets | Liabilities | Owners' Equity |
|---|---|---|
| $200, 000 | $50, 000 |
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