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The difference between a company's Assets and its Liabilities is Equity or Owner’s Equity according to Accounting Equation : Assets = Liabilities + Equity Assets - Liabilities = Equity This accounting equation is the basis of Double Entry System that all of the resources (Assets) must be equal to the Rights of Outsiders (External Liabilities) and Rights of Owners of the business (Internal Liabilities or Equity). Equity shows the right of owners against the assets  of the business. Equity provides internal sources of finance for running and growing the business. If the investors invest into the business, then share capital increases which also increases equity on balance sheet.

This is the most important topic and the whole Accounting is based on this equation as all the financial statements follow this accounting equation and this accounting equation includes all the five types of accounts used in accounting. These Accounts are:     ü   Assets     ü   Liabilities     ü   Owner's Equity     ü   Income     ü   Expenses You may also be interested in " Expanded Accounting Equation " What Do You Mean By Accounting Equation? Accounting Equation or Basic Accounting Equation or Fundamental Accounting Equation or Accou nti ng Formula Sheet  tells us that all the assets owned by the business are always equal to the sum of liabilities and Owner's Equity or i n other words it shows us the fu ndame ntal relatio nship exists betwee n Assets, Liabilities A nd Equity. Numerically, we can write Accou n ti ng Equatio n Formula as s...