Question

1. How do you differentiate between assets and liabilities on the balance sheet?

2. What is the basic Balance Sheet equation and why is it important?

Answer 1

1)items which is in the right side of balance sheet is assets and items in the left side of balance sheet is called liabilities

Assets are owned by the bussiness where as liabilities are what bussiness owe to outsiders and owners

2) accounting equation is

Liabilities +owners equity = assets

This equation is important because for a balance sheet to be valid it has to satisfy this equation.

If assets are increased either liabilities or owneers equity shall be increased

If liabilities are increased either owners equity is decreased or assets are decreased