hi welcome back this is 365 careers
accounting course so we’ve learned what accounting is and why it is useful the
four types of accounting the three main financial statements and also some
details about the accounts that form each of these statements you should feel
pretty good about the progress that we are making so now is the time to look at
the main accounting equation do you remember what a balance sheet is I’m
sure you do a balance sheet shows what a company owns and owes at a specific
point in time on the left side are the company’s assets the things that it owns
on the right side are the company’s liabilities and equity showing how the
company was financed this is what the balance sheet portrays the reason it is
called a balance sheet is because assets must equal liabilities and equity the
two sides have to be equal or else a mistake has been made this principle is
known as the accounting equation and is one of the core principles around which
accounting has been built assets are equal to liabilities and equity this is
very logical right on the right side we have liabilities and equity which are
the firm’s sources of financing liabilities are other people’s money and
equity is our money on the left side we have the firm’s assets the things that
it has bought with the money that it received given that we are thinking
about the same amount of money on both sides it is only natural that one side
is equal to the other the accounting equation must be
satisfied for every business you will ever see it balances for the gelato shop
on the next corner as well as for Walmart and Chevron