Fundamental Accounting Equation (Assets = Liabilities + Equity)

A set of Q&A flashcards covering the fundamental accounting equation and its components.

What is the fundamental accounting equation?

Assets = Liabilities + Equity.

What do assets represent in accounting?

Resources owned by the business with economic value.

What do liabilities represent in the accounting equation?

Obligations or debts owed to outsiders; claims by creditors.

What does equity represent in the accounting equation?

Owner's claim on assets after liabilities are paid; owner's residual interest.

How are assets financed according to the fundamental equation?

Assets are financed either by Liabilities or by Equity.