This forms the basis for an Accounting report called the Balance Sheet
Clearview Tv's Balance Sheet as at 1/1/20XX Assets Liabilities Cash 1900 Accounts payable 400 Stock 3000 Loan 500 900 Plant 750 Vehicles 1250 Owner's Equity Capital 5000 less Drawings 500 plus Net Profit 1500 6000 6900 6900 Asset = Liabilities + Owner's Equity 6900 = 900 + 6000
As you can see the sum of all the Assets on the left is exactly 'balanced' by the sum of the Owner Equity and Liabilities on the right.
The Balance Sheet is just a detailed statement of the Balance Sheet Equation.
A Balance Sheet is a statement of the worth of a business at a particular point in time.
It is important to note that after every transaction the Balance Sheet stays in balance.
This is not an accident.
If one side of the Equation is increased the other side increases to compensate.
Every transaction that occurs has two sides and is processed to the accounts by the rules of Double Entry Bookkeeping.
(Incidentally 'Bookkeeping' is the only English word with 3 consecutive pairs of letters.)
Practice Exercises
You should attempt exercises 1.1, 1.2, 1.3, 1.4 and 1.5.