The common accounting equation (also called as based accounting equation or just an accounting equation) is represented by the following formula:
Assets are firm’s resources which it can freely owe and use them. Usually such items are included in this category: cash, account receivable, investments, buildings etc.
Liabilities are defined as firm’s obligations measured in the certain amount of money. For instance, accounts and loans payable, wages/salaries payable, income taxes payable, interest payable, etc.
Owner's equity is determined by the amount of investing capital into the firm by the owners plus accumulated net income that has not been withdrawn /distributed to the partners. ("Accounting Equation | Explanation | AccountingCoach", 2016).
Let us place each category in the proper order so as to fulfill this accounting equation and tabulate it as follows:
Balance sheet (statement of financial position)
There is an essential distinction between an expense and a cost. Expense is considered to be recorded on the statement of income and is defined as a cost which has terminated already, was spent or was mandatory so as to get gain / revenue in the certain time frame.
However, a cost is thought to be a disbursement either payment. The cost may take place when a firm buys some kind of a resource or an asset; also it can be a contraction of some obligation or distribution to owners. ("Is there a difference between an expense and an expenditure? | AccountingCoach", 2016).
Accounting Equation | Explanation | AccountingCoach. (2016). AccountingCoach.com. Retrieved 14 May 2016, from http://www.accountingcoach.com/accounting-equation/explanation
Is there a difference between an expense and an expenditure? | AccountingCoach. (2016). AccountingCoach.com. Retrieved 14 May 2016, from http://www.accountingcoach.com/blog/difference-expense-expenditure