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To understand the basics of accounting, it is important to look at its three main components and the terminology related to these components.Recorded on the right side of a company's balance sheet, liabilities include any payable amounts, loans, mortgages, earned premiums, deferred revenues and .accrued expenses Equity also known as shareholder's equity refers to the amount of money that a company must return to its shareholders after all of its assets are liquidated and all of its debt is paid off.Examples of a company's assets include investments, cash, inventory, accounts receivable, land, supplies, equipment, buildings and vehicles Liabilities refer to the legal financial obligations or debts that companies incur during business operations.Equity is calculated by subtracting a company's total assets to its total liabilities Expenses refer to the costs of operations that businesses incur to generate revenue.

To understand the basics of
accounting, it is important to look at its
three main components and the
terminology related to these
components. The basic components of
accounting are
Companies must identify a clear
approach to record-keeping, before
they begin the accounting process.
They have to set up some basic
accounts in which to store information.
Accounts fall into the following
classifications
Assets refer to resources or items that
the company owns
They have future economic value that
can be measured and can be
expressed in monetary terms.
Examples of a company's assets
include investments, cash, inventory,
accounts receivable, land, supplies,
equipment, buildings and vehicles
Liabilities refer to the legal financial
obligations or debts that companies
incur during business operations. They
can be limited or unlimited. They are
settled over time through the transfer
of economic benefits such as money,
services or goods. Recorded on the
right side of a company's balance
sheet, liabilities include any payable
amounts, loans, mortgages, earned
premiums, deferred revenues and
.accrued expenses
Equity also known as shareholder's
equity refers to the amount of money
that a company must return to its
shareholders after all of its assets are
liquidated and all of its debt is paid off.
Equity is calculated by subtracting a
company's total assets to its total
liabilities
Expenses refer to the costs of
operations that businesses incur to
generate revenue. Common expenses
include employee wages, payments to
suppliers, equipment depreciation and
.factory leases
Revenue refers to the income that a
company generates from its normal
business operations. It includes
deductions and discounts for returned
products. Revenue is the gross income
figure from which costs are subtracted
to determine net income
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