What is equity in accounting?

What is the accounting definition of asset,liabilities and owners equity?

• im taking accounting in my new school and since the syllabus is totally different to what i was previously doing,i have no previous experience AT ALL in accounting,but the rest of my class has,and my class is full of bitches who would laugh if i asked the teacher so i was hoping someone here could explain it ot me here? wikipedia couldnt help cos it gave a really complicated explanation that i didnt understand. could someone PLEASE explain the definition of asset,liabilities and owners equity from the accounting definition and examples if possible!? PLEASE!!!??? I WOULD REALLY REALLY REALLY APPRECIATE IT!

• Answer:

  Assets are resources that are owned by the company and that are capable of producing value. They are usually divided into two categories: current assets and fixed assets. Current assets could be liquidated (e.g. turned into cash) immediately or quite quickly, whereas fixed assets cannot. Examples: the most basic current asset is cash itself. A company can generate value by using cash, let's say by paying for supplies with it. Other current assets might include accounts receivable (money to be received in usually 30-120 days from our clients), any short-term investments (like bank deposits for 3 months for instance) or inventory. Fixed assets include property, plant and equipment for instance. Liabilities are obligations that a company has to live up to sometime in the future. Just like assets they are classified as current and long-term liabilities. Examples: current liabilities can be among others wages or account payable (money that you owe to suppliers cuz you bought something on credit). Long-term liabilities are long-term debt (loans) or leases, etc. So as you can see assets need to be financed, and they can be financed through liabilities. For example: if you need cash, you take out a loan of $1 million, then you'll have $1 million dollars of additional liabilities and $1 million of additional cash. Or if you buy supplies on credit, your assets will increase but your accounts payable (part of liabilities) will increase by the same amount as well. Stuff that is not financed by liabilities can be financed by owners' equity. This means mostly the issuing of shares or using retained earnings (the amount of earnings that remains from all the previous years after paying all costs, interest, taxes and dividends). Because of all this, the relationship between these three things is the following: assets = liabilities + owners' equity. This equation holds ALL THE TIME. So: If an asset increases, then - another asset will have to decrease by the same amount (if you sell $5,000 worth of inventories, you'll have $5,000 more in cash) - AND/OR a liability/owner's equity will have to increase by the same amount (taking out a loan, I already described this example before) The inverse of this relationship is of course valid, as well: if an asset decreases then another asset will have to increase AND/OR a liability will decrease, as well. The equation assets = liabilities + owners' equity will ALWAYS hold. It's important that I'm not an accounting expert, but as part of my studies I've studied the basics of accounting. Btw, **** those laughin' bitchez, smack one of them in the face for me if you ever get to.