The fundamental accounting equation states: assets = liabilities + equity
Step-by-step explanation:
This equation is also called balance sheet equation. It represents relationship between assets, liabilities and owner's equity.
Assets are resources owned by business. Anything tangible or intangible which is used by business to produce products or give business are assets.
Liabilities are the future sacrifices of economic benefit that has been used in past but will be settled in future.
Equity is a difference between value of assets and value of liabilities.
Example:
A student buys mobile phone for $ 850. To pay shopkeeper, student has cash of $ 400 and borrows $ 450 for remaining amount. Now, he has an asset of $850, liabilities are $450 and equity is $400.