What are Liabilities?

Liabilities appear on a company’s Balance Sheet and are what the company owes. Per the basic accounting formula, Liabilities have to equal Assets minus Owners’ Equity. The company is obligated to pay their liabilities.

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What are Assets?

Assets appear on a company’s Balance Sheet and are what the company owns. Per the basic accounting formula, Assets have to equal Liabilities plus Owners’ Equity. If the company desired, they could sell the Assets, since they own them.

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The Basic Accounting Formula

The basic accounting formula is: Assets = Liabilities + Owners’ Equity. This formula can also be written as:Liabilities = Assets - Owners’ Equity. Additionally, this formula can be written as:Owners’ Equity = Assets - Liabilities. When looking at financial reports for...

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