Asset = Liabilities + Owner’s Equity
An Asset is anything you have that has any value to it. Examples would be your home, car, land furniture, etc. The number one asset is cash. Even if an asset has a loan or mortgage on it, it is still an asset. The value of a mortgaged asset will be decreased by the amount left on the mortgage when we list liabilities. Any asset with a loan outstanding will also have its worth decreased by the amount remaining on the loan. Examples of asset accounts will be supplies, insurance, cash, office equipment, computers, automobiles, furniture, etc. Each account will have its own title, but all assets will be grouped under the classification of assets.
Next is Liabilities. A liability is a monetary value of a company’s current and future obligation. This could be a person, bank, credit union, or any other institution or company you owe money to. Account titles would be the name of the person to whom you owe money, or the name of a business from whom you have bought on credit, or the name of the bank where your loan or mortgage is financed. Again, you may have many account titles under the classification of liabilities.
Last is Owners’ Equity or Stockholders’ Equity. This is the owners’ investment in the company. The two main account titles: Your Name, Capital and Your Name, Drawing. The capital account shows the owner’s net worth in the business or a person’s net worth, and the drawing account shows how much money the owner of a business has withdrawn throughout the fiscal period. A fiscal period is the period of time for which a business records its activities usually one month.