Accounting EquationThe accounting equation states that a company's total assets are equal to the sum of its liabilities and its shareholders' equity.
This straightforward number on a company balance sheet is considered to be the foundation of the double-entry accounting system. The accounting equation ensures that the balance sheet remains balanced. That is, each entry made on the debit side has a corresponding entry (or coverage) on the credit side.
The accounting equation is also called the basic accounting equation or the balance sheet equation.
Assets represent the valuable resources controlled by the company. The liabilities represent their obligations.
Both liabilities and shareholders' equity represent how the assets of a company are financed.
Financing through debt shows as a liability, while financing through issuing equity shares appears in shareholders' equity.
(Investopedia)
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