Accounting Equation
Assets
Liabilities
A liability is an obligation and it is reported on a company's balance sheet. A common example of a liability is accounts payable. Accounts payable arise when a company purchases goods or services on credit from a supplier. When the company pays the supplier, the company's accounts payable is reduced.
Other common examples of liabilities include loans payable, bonds payable, interest payable, wages payable, and income taxes payable. Less common liabilities are customer deposits and deferred revenues. Deferred revenues come about when customers prepay a company for work to be done in a future accounting period. When the company performs the work, the liability will be reduced and the company will report the amount it earned as revenues on its income statement.
Owners (stockholders') equity
The book value of a company equal to the recorded amounts of assets minus the recorded amounts of liabilities.