Unit 1 and 2.docx - Property or things of value owned by an...

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Property or things of value owned by an economic unit (examples: cash, supplies, equipment, building, land) are know in accounting terminology as assets. Liabilities are amounts owed (one to whom money is owed is know as a creditor). The dollar difference between what is owned and what is owed is the net worth of the business and is known as the owner's equity . The fundamental accounting equation states that Assets = Liabilities + Owner's Equity (owned) (owed) (net worth) In order for the accounting records to be accurate (or, in order for the accounting system to work) this equation must always be in balance. Whenever the values of what is owned, what is owed, or what the business is worth change, the change will cause both sides of the equation to change in an identical manner, i.e. Both sides of the equation increase Both sides of the equation decrease One side of the equation increases in one account and decreases in another and the other side of the equation does not change at all.
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