3 Financial Areas to Balance: Assets, Liabilities, and Equity

By Consumer Dummies

Part of Bookkeeping All-in-One For Dummies Cheat Sheet

Every business has three key financial parts that you, as the bookkeeper, must keep in balance: assets, liabilities, and equity. Following are the descriptions of these three terms:

  • Assets include everything the company owns, such as cash, inventory, buildings, equipment, and vehicles.

  • Liabilities include everything the company owes to others, such as vendor bills, credit card balances, and bank loans.

  • Equity includes the claims owners have on the assets based on their portion of ownership in the company.

The formula for keeping your books in balance involves these three elements:

Assets = Liabilities + Equity