Question

Hi there! Could someone please answer this for me? I would greatly appreciate it, and will totally like your answer! Length isn't necessarily important, just needs to be accurate and such. Thanks in advance!!!!!!! (I am supposed to include references when using examples, or include the link from where you got it and I can format the reference).

"Explain your understanding of the differences between liabilities and owners’ equity, giving examples of each"

Answer 1

In technical terms liabilities are the money that a business has to pay to outsiders while equity is the money that business has to pay to the owners of the company.

Liabilities and equity added together comprises credit side of a balance sheet.

Liabilities are of diffrent nature such as current liabilities, long term liabilities, etc. Owner's equity include paid in capital and accumulated earnings ( popularly known as retained earnings) .

Another major difference could be that liabilities may become zero when all liabilities are paid off but owner's equity becomes zero only when business is closed or when there are heavy losses which have consumed all the capital.

Example of liabilities include, Notes payables, accounts payables, salaries payable, bond payables, accrued expenses etc

Example of owner's equity include common stock, retained earnings, additional paid in capital, preference stock etc.