Question

Why is it important to be able to differentiate between Liabilities and Equity on the Financial statements?

Answer 1

We differentiate between liabilities and equity during preparation in financial statement because Equity represents company internal liabilities, for which company not requires to pay any amount to outsider. However liabilities are require to pay outsider person. For this purpose it is important to differentiate between liabilities and equity.
Equity includes equity share capital, preferred share capital, retained earning etc.
Liability includes Debenture, Long term loans, and other current and noncurrent liabilities.