Accounting equation

Question 1

Asset

Answer 1

Economic resource controlled by the entity as a result of past transaction. It helps a business to earn income.

Question 2

Liability

Answer 2

Obligation of the entity to transfer an economic resource as a result of past transaction. The business owes external parties.

Question 3

Equity

Answer 3

Residual interest in the assets of the entity after deducting all its liabilities - what the business owes the owner (owner’s investments)