First you have Assets which can be described as money, furniture, or a car. Then you have Liabilities which is money you owe people. In regards to liabilities you have Owner’s Equity which adds up to your capital. Capital is the money you have on hand. All these create you balance sheet which reports the assets, liabilities, and owner’s equity of the business. The balance sheet should always balance out once finished. The formula is Assets=Liabilities + Owner’s Equity.
Reference: Charles T. Horngren, Walter T. Harrison, Jr., Linda Smith Bamber, 2005, Accounting I&II, Pearson, Chap 1, pg. 13
