Introduction to Assets, Liabilities, and Equity The foundation of accounting is the basic equation: Assets = Liabilities + Equity This equation shows how a company’s resources are financed — either through debt (liabilities) or owner investment (equity). Understanding this relationship is essential for evaluating financial health and making sound business decisions. In this guide, we focus on Equity Liabilities, with special attention to short-term loans and taxes payable — two key obligations that directly impact financial stability.