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Our Report is about..The Accounting EquationThe Accounting EquationThe Accounting EquationThe Accounting EquationAssets= Liabilities + Owners EquityThe accounting equation states that:AssetOwners equityLiabilitiesThis 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.
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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.
AssetsCapital, 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.
CapitalLiabilities 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 equipment, liabilities can be seen as the source or a company's assetsLiabilitiesOne 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 balance sheet is a breakdown of where the assets came from, or theirsources.Assets come from two basically different sources:creditorsandowners.Balance Sheet Basics and the Accounting EquationWhere 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 revenues. When net income is positive, it is a called profit. When negative, it is a loss.The income statement
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