what are the key components in the accounting equation 
the financial position of any business large or small is based on two key components of the balance sheet assets and liabilities owners equity or shareholders equity is the third section of the balance sheet the accounting equation is a representation of how these three important components are associated with each other assets represent the valuable resources controlled by a company while liabilities represent its obligations both liabilities and shareholders equity represent how the assets of a company are financed if it s financed through debt it ll show as a liability but if it s financed through issuing equity shares to investors it ll show in shareholders equity the accounting equation helps to assess whether the business transactions carried out by the company are being accurately reflected in its books and accounts below are examples of items listed on the balance sheet assets include cash and cash equivalents or liquid assets which may include treasury bills and certificates of deposit cds accounts receivable list the amounts of money owed to the company by its customers for the sale of its products inventory is also considered an asset the major and often largest value assets of most companies are that company s machinery buildings and property these are fixed assets that are usually held for many years liabilities are debts that a company owes and costs that it needs to pay in order to keep the company running debt is a liability whether it is a long term loan or a bill that is due to be paid costs include rent taxes utilities salaries wages and dividends payable the shareholders equity number is a company s total assets minus its total liabilities it can be defined as the total number of dollars that a company would have left if it liquidated all of its assets and paid off all of its liabilities this would then be distributed to the shareholders retained earnings are part of shareholders equity this number is the sum of total earnings that were not paid to shareholders as dividends think of retained earnings as savings since it represents the total profits that have been saved and put aside or retained for future use accounting equation formula and calculationassets liabilities owner s equity text assets text liabilities text owner s equity assets liabilities owner s equity the balance sheet holds the elements that contribute to the accounting equation as an example say leading retailer xyz corp reported the following on its balance sheet for its latest full fiscal year if we calculate the right hand side of the accounting equation equity liabilities we arrive at 50 billion 120 billion 170 billion which matches the value of the assets reported by the company 