Tham khảo tài liệu 'cash rules: learn & manage the 7 cash-flow drivers for your company's success_3', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | CHAPTER THREE CASH RULES The Accounting Equation Simply put the accounting equation means that everything used by the business has to come initially from either its owners or its creditors. The business entity may be a sole proprietorship a partnership or some form of corporation but since the corporate form is most common we will use it for illustration. Everything the corporation owns its assets has to be financed by someone whether by you or some associates as stockholders by a bank loan or by a supplier. At this point perhaps without realizing it you have already been exposed to the basic structure of the balance sheet which is made up of the same three structural pieces just described what the business owns total assets the interest of owners in what s owned net worth or owner s equity and the interest of creditors in what s owned liabilities . Let s look at the accounting equation in a slightly different way Assets Liabilities Net Worth A L NW Take a look at the simple balance sheet on the opposite page. Everything the business entity itself owns is placed on the left. Everything it owes goes on the right. Also on the right is the owner s equity or net-worth accounts representing the difference between what the entity owns and what it owes. Note that the balance sheet actually balances that is the asset side is exactly balanced by the other side consisting of the liabilities and net worth. The accounting equation equates. This fundamental relationship of balance must be maintained. Anything added for use in the business is an additional asset it has to have its cost covered by either creditors or owners. Owners may cover such costs by direct investments in the company that is by buying stock. More commonly owners cover the costs of buying assets indirectly through earnings retained in the business. The accounting equation A L NW always holds unless there is an accounting error. Just because the equation holds and the balance sheet balances that doesn t mean .
