What is the accounting equation? Describe each of its three components.
The accounting equation is:
ASSETS - LIABILITIES = STOCKHOLDERS' EQUITY
or
ASSETS = LIABILITIES + STOCKHOLDERS' EQUITY
Assets are the economic resources used by a business for the production of revenue. Liabilities are obligations of a business to relinquish assets, provide services, or accept other obligations. Equity, also called "residual interest" or "net assets", is the portion of the assets remaining after the creditors' claims have been satisfied (i.e., Assets - Liabilities).