The fundamental accounting equation captures two basic features of any company.
The left side of the accounting equation shows the assets, or economic resources of a
company. The right side of the accounting equation indicates who has a claim on the
company’s assets. These claims may be the claims of creditors (liabilities) or they may
be the claims of owners (stockholders’ equity).
The implication of the fundamental accounting equation is that what a company
owns (its assets) must always be equal to what it owes (its liabilities and stockholders’
equity). Cornerstone 1-1 illustrates this key relationship implied by the fundamental
accounting equation.