Could you please answer this question?

Why must assets always equal liabilities+owners equity:confused: :confused:

Because it's forced to be so by double-entry accounting.

Consider a business with only cash assets (for a simple case). How can the business increase the amount of cash they have?

1. Borrow $10. Assets increase by $10, but liabilities also increase by $10
2. Owner invests $10. Assets increase by $10, but owner's equity also increases by $10

And now the tricky one:

3. Make $10 by providing a service. Assets increase by $10, but owner's equity also increases by $10.

What assets do you have?

Cash, a car, computer, stereo, iPod?

Let's say all the above is valued at $7,000


Does that mean you are worth $7,000?

NO. Becaucse you owe money to.

Let' say you owe me $1,000 and you owe the bank $3,000 for a person car loan.

That means you owe $4,000.

So you own $7,000 in assets but owe $4,000 (liabilities).

Therefore, you are only really work (7,000-4,000) $3,000 (owner's equity).


Therefore, we can say that:
Assets – Liabilities = Owner's Equity

Or we can re-write that to read:
Assets = Liabilities + Owner's Equity