The business users its assets in carrying out such activities as production and sales. The common characteristic possessed by all assets is the capacity to provide future services or benefits. Assets are showed on a company's balance sheet, and they are increasing the value of a firm or benefit the firm's operations.
Liabilities are claims against assets that is, existing debts and obligations
The ownership claim on total assets is owner's equity. It is equal to total assets minus total liabilities.
Items affected Owner's equity.
There are two items effect owners equity
- Revenue: Revenues are the gross increase in owner's equity resulting from business activities entered into for the purpose of earning income.
- Expenses: Expenses are the cost of assets consumed or services used in the process of earning revenue. Expenses decreased the owner's equity that result from operating the business.