Libilities

Obligations of a business entity arise during the course of business e.g Accounts Payable, Note Payable, All types of expenses payable, creditors, All types of Loans e.g short or long,

Assets

Properties of the business. Such as Land, Buildings, Vehicles, Plant & machinery, Furniture & Fixtures, Office Equipment, Cash, Banks A/c, Account Receivables etc.

Accounting Equation

ASSETS                                                =                    LIABILITIES  + CAPITAL

This term is also called balance sheet equation. This shows what the entity owns and what is owes to other. Our total accounting revolves around this. There are three types of accounts ASSETS, LIABILITIES AND CAPITAL. Assets shows what the company owns while liabilities and capital shows what the company owes to others + owners. Assets are resources while the liabilities and owners equity are the claims on these resources. Every transaction has double effects under double entry accounting system and accounting equation is effected by these effects. This complete double effect may belong to assets, liabilities or capital or one effect may belong to assets and other one effect may belong to liabilities or capital. One thing important to remember that all profits and losses or income or expenses effect the capital account in accounting equation.