Something confusing me
in
Accounting and Financial Statement Analysis
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The Main Accounting Equation and How It Stays in Balance
I don't understand why they should be equal , what if my assets are much more than the liabilities and equity , i made some good business choices.
please explain
1 answers ( 0 marked as helpful)
Hi Andrew,
The way the statement functions, it is impossible for Assets to be greater than Equity and Liability.
Liability and Equity is how you fund the business. So by definition everything you pour in as Liability and Equity becomes Assets.
Then the catch is that if you make good business decisions and Assets grow, you have to recognize this effect in the P&L statement as profit, which increases Equity.
Therefore, Assets is always equal to Liabilities and Equity.
Best,
Ned