The balance sheet equation shows

The balance sheet equation shows assets and sources of financing them. A balance sheet is a financial statement that reports a company's assets, liabilities, and owners' equity at a specific point in time. Assets are items of value that a company owns and can be used to generate revenue. Liabilities are obligations that a company owes to others. Owner's equity represents the residual interest in the assets of the company after deducting its liabilities. The balance sheet equation states that assets equal the sum of liabilities and owners' equity, which means that everything the company owns (assets) is financed either through debt (liabilities) or through investment by the owners (owners' equity). This equation is usually represented as: Assets = Liabilities + Owners' Equity.