Assets and Liabilities

Let’s assume, Mr. Bill is the sole proprietor of XYZ Co. (ASC). On December 1, 2013, Mr. Bill invests personal funds of $10,000 to start XYZ Co. So after this transaction, the accounting equation will be,

Assets (+ $10,000) = Liabilities (No effect) + Owner’s equity (+ $10,000)

As you can see, the assets and owner’s equity increase by same amount ($10,000), so the accounting equation says that, XYZ Co. possesses assets of $10,000 and the source of those assets was the owner, Mr. Bill. In other words, XYZ Co. has assets of $10,000 and the owner has a claim for the remainder.

Let’s see how balance is affected by the accounting equation for a sole proprietorship,

Here is the balance sheet of ASC at the end of December 1, 2013.

XYZ Co.

Balance Sheet

December 1, 2013

Assets

Liabilities

Cash = $ 10,000

Liabilities

(Owner’s Equity, Mr. Bill Capital) = $ 10,000

Total Assets = $10,000

Total liabilities and Owner’s equity = $ 10,000

Last Updated on February 11, 2019