 Hi, this is Dan O'Brien. I'm an accounting instructor at North Central Technical College. And right now, we're going over the accounting equation. Accounting equation or defining assets, liability, and equity. This is where it all starts. And in accounting, everything balances. We'll have trial balances that balance. We'll have transactions that balance. When we do something to one, we can't stop doing the transaction until we do something to something else. If you look at the accounting equation, assets equal liability plus equity. Or basically, if I have an asset, where did it come from? Did the owner give you the asset? Well, then it was an investment in the business. And so it'll be part of your capital or part of your equity. If you got an asset by borrowing money from a bank to buy it, then it came from liability. So it is always in balance. If you look at it, anything that happens to a company, assets will always equal liability plus owner's equity. Now, understanding what assets are, assets are going to be something that has economic resource to the company that can be used either now or in the future. Cash is a big one. Everyone understands cash, right? It's in your pocket. There's some other things for companies, especially land. Inventory. Inventory is product that you sell to your customer. So you can be a merchandise company, you buy and sell it. That's what you're in business for. Or you can be a manufacturer, you buy material, you produce it, you make it into something else, and then you sell it to your customer. Now, you can have furniture, you can have capital equipment, fixed assets, fixed assets, machinery to make some product. Or you can have a building to have people come to your building to buy a product or for office space. Those are all typical type of assets, supplies that's another type of asset. Liabilities, liabilities are what you owe someone where they can come and say, please give me money. Or they can go to a judge and say, they didn't pay me. Tell them to give me money. So you have typical liabilities that counts payable. These are the normal utility bills and things like that that come in that a company will pay for. Notes payable, formal instrument that you signed off saying, I do owe someone something. And then you have liabilities. These are a certain debt that you owe to other creditors. It can be a bond that you sell bonds to people and that you give them a certain amount of interest. You can have salaries payable, what you owe your employees for wages. Equity, equity is basically a company's network. This is the owner's residual claim on the assets. The asset is worth 100,000. You owe 80,000 to people for liabilities. The owner's claim is 20,000, OK? We put it in owner's capital account for a sole proprietor or it will be common stock and retained earnings if it is a corporation. Now, if the owner takes money out of the company, that will be an owner's withdrawal that will decrease their capital account. So you look at it. What increases the capital account? Investment. Owner gives the company more money. Net income, revenue minus expenses, net income will increase the equity account. And then withdrawal will decrease the capital account. And that's pretty much how you determine what is your ending capital. This accounting equation is the basis for all of accounting. Understanding the accounting equation gives you the right focus for everything that we're going to be covering in accounting.