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To understand 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 shareholders after all of its assets are liquidated and all of its debt is paid off .Examples of 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 .It includes deductions and discounts for returned products .Revenue is the gross income figure from which
To understand 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 expressed in monetary terms . Examples of 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 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 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
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