Why does assets equal liabilities plus equity?
Understand the Problem
The question is asking for the explanation of the accounting equation, which states that assets are equal to the sum of liabilities and equity. This is a fundamental concept in accounting that depicts the relationship between what a company owns (assets) and what it owes (liabilities and equity).
Answer
Assets equal liabilities plus equity.
The final answer is: Assets equal liabilities plus equity because the resources owned by a business (assets) are funded by either debts (liabilities) or the owners' investments (equity).
Answer for screen readers
The final answer is: Assets equal liabilities plus equity because the resources owned by a business (assets) are funded by either debts (liabilities) or the owners' investments (equity).
More Information
The fundamental accounting equation illustrates the balance sheet structure by showing that the left side (assets) must always equal the right side (liabilities and equity), ensuring all resources are accounted for by the way they are financed.
Sources
- The web page with info on - Example Source - lendingtree.com
- Accounting Equation: What It Is and How You Calculate It - investopedia.com
