The Accounting Equation

Accounting is founded on the basic equation that states a companys Assets equal their full(a) Liabilities plus their total Owners Equity . This equation is summarized as ALOE . This isthe basis of the Balance Sheet. Assets atomic number 18 the companys furniture, fixtures and equipment, physical situation, intellectual property and other resources. These properties include the physical land as well as the equipmentand building improvements on the property.A companys liabilities are all of the obligations that the company has incurred. Thecompany has to portion these liabilities by making payments on them. These payments may takethe form of cash income or may be sourced from loaned monies. If they borrow money, this is anadditional liability. Liability is money owed debts or pecuniary obligations (Dictionary. com,2009). Liabilities emergence assets in the equation that is the Balance Sheet.Owners Equity, also known as owners/shareholders equity, is the final variable in theequati on. When liabilities are subtracted from assets, the remaining balance is the owners equity. The term owners equity is used for privately owned companies. If the business is an incorporatedentity which issued common stock in exchange for a percentage of company ownership, then theowners equity is termed owners/shareholders equity.Cash, stocks and retained earnings are allowners/shareholders equity. E1-1 Urlacher Company provides the following accounting service tasks each year. confabulation Analysis and interpretation of financial data. Communication Interpretation of meaning, uses and limits of financial data. Communication Compiling a summary of financial events. Communication Accounting report preparation. Recording Maintaining a linear, chronological record of financial data.