Assets, Liability, Owners Equity and the Accounting Concepts

Topics: Generally Accepted Accounting Principles, Balance sheet, Asset Pages: 4 (1223 words) Published: November 8, 2008
Assets, liabilities and owner’s equity are the three components that make up a company’s balance sheet. The balance sheet, which shows a business’s financial condition at any point, is based on the equation of assets equals to liabilities plus owner’s equity. This equation is also the framework track of money as it flows in and out of a company. Starting with the first penny a company earn, will be recorded in a general ledger each and every transaction using double-entry system of debits and credits. Assets get recorded on the top or the left side of the balance sheet while liabilities and owner’s equity are recorded on the bottom or the right side of the balance sheet.

An assets is anything of value that a company owns including cash. There are several types of assets that is current assets, investment, capital assets and intangible assets. Current assets are assets with dollar amounts that continually change for example cash, accounts receivable, inventory or raw material of a company uses to make a product. Investment are assets companies like individuals can own securities such as stock and bonds. While capital assets is also called plant assets which is permanent things that a company owns, use within the business and are not items that the company sells such as land, building, equipment and vehicles. Intangible assets are like patents copyrights and other nonmaterial assets that have value. Liabilities are anything that a company owes to people businesses other than its owners. There are two types of liabilities that is current liabilities and long-term liabilities. In general, if a liability must be paid within a year, it is considered as current assets that includes bills, money a company owe to vendors and suppliers, employee payroll and short-term loans. A long-term liability is any debt that extends beyond one year such as mortgage. Owner’s equity is also called as capital is any debt owed to the business owners.

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