{"id":4365,"date":"2020-03-05T17:36:00","date_gmt":"2020-03-05T17:36:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=4365"},"modified":"2026-03-05T14:40:32","modified_gmt":"2026-03-05T14:40:32","slug":"assets-liabilities-equity","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/assets-liabilities-equity\/","title":{"rendered":"Assets, Liabilities, and Equity"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following statements is correct?\",\n    \"text\": \"Which of the following statements is correct?\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A. Equity equals Assets minus Liabilities. This is derived from the basic accounting equation: Assets = Liabilities + Equity.\"\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Equity is equal to Assets less Liabilities.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Equity refers to the resources of a company.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Liabilities refer to things which a company owns.\"\n      }\n    ]\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"ABC Company reported total assets of $250,000 and total equity of $100,000. What is the value of the company\u2019s liabilities?\",\n    \"text\": \"ABC Company reported a total assets value of $250,000 and a total equity value of $100,000. What is the value of the company\u2019s liabilities?\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A. Using the accounting equation Assets = Liabilities + Equity. Rearranging gives Liabilities = Assets \u2212 Equity. Therefore, Liabilities = 250,000 \u2212 100,000 = $150,000.\"\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"$150,000.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"$175,000.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"$350,000.\"\n      }\n    ]\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Understanding Balance Sheets (2025 Level I CFA\u00ae Exam \u2013 FRA \u2013 Module 4)\",\n  \"description\": \"This video lesson covers the CFA Level 1 reading on The Balance Sheet, including the elements of assets, liabilities, and equity. It explains balance sheet formats, measurement bases, current vs. non-current classification, shareholders\u2019 equity, and ratio analysis. The lesson also demonstrates common-size conversion and interpretation for financial analysis.\",\n  \"uploadDate\": \"2022-04-19T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/VKYuCGCea20\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=VKYuCGCea20\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/VKYuCGCea20\",\n  \"duration\": \"PT49M29S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/VKYuCGCea20?si=-nMm7zytuWTgN0Ji\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<p>The balance sheet is also known as the statement of financial position or statement of financial condition. It is a financial statement that gives a snapshot of a company\u2019s assets, and its sources of capital, i.e., liabilities and shareholder\u2019s equity, at a specific point in time. This provides vital information on what a company owns, what it owes, and what its owners\u2019 claims are.<\/p>\n<h2><strong>Elements of the Balance Sheet<\/strong><\/h2>\n<p>The three basic elements of the balance sheet are assets, liabilities, and equity.<\/p>\n<ul>\n<li>Assets refer to the resources which a company owns or controls because of past events and from which future economic benefits are expected to flow.<\/li>\n<\/ul>\n<ul>\n<li>Liabilities refer to anything which the company owes. These obligations occur because of past events and their settlement is expected to result in an outflow of economic benefits.<\/li>\n<\/ul>\n<ul>\n<li>Equity or shareholders\u2019 equity refers to the owners\u2019 residual interest in the company\u2019s assets after the deduction of its liabilities.<\/li>\n<\/ul>\n<p>The three basic elements may be represented in the form of the basic accounting equation:<\/p>\n<p>$$ \\text{Assets} = \\text{Liabilities} + \\text{Equity} $$<\/p>\n<blockquote>\n<h3><strong>Question 1<\/strong><\/h3>\n<p>Which of the following statements is correct?<\/p>\n<p>A. Equity is equal to Assets less Liabilities.<\/p>\n<p>B. Equity refers to the resources of a company.<\/p>\n<p>C. Liabilities refer to things which a company owns.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>Rearranging the basic accounting equation, \u2018Assets = Liabilities + Equity\u2019, and making \u2018Equity\u2019 the subject, we see that \u2018Equity = Assets \u2013 Liabilities\u2019.<\/p>\n<p><strong>B is incorrect<\/strong> because \u2018Assets\u2019, and not \u2018Equity\u2019, refer to the resources of a company.<\/p>\n<p><strong>C is incorrect<\/strong> because \u2018Assets\u2019, and not \u2018Liabilities\u2019, refer to things which a company owns.<\/p>\n<h3><strong>Question 2<\/strong><\/h3>\n<p>ABC Company reported a total assets value of $250,000 and a total equity value of $100,000. What is the value of the company\u2019s liabilities?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">$150,000<\/li>\n<li data-tadv-p=\"keep\">$175,000<\/li>\n<li data-tadv-p=\"keep\">$350,000<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>As a company\u2019s assets could be calculated as the sum of its liabilities and its equity:<\/p>\n<p>$$ \\text{Assets} = \\text{Liabilities} + \\text{Equity} $$<\/p>\n<p>Hence, the value of a company\u2019s liabilities is the result of deducting that company\u2019s equity from its liabilities.<\/p>\n<p>L = A \u2013 E = $250,000 \u2013 $100,000 = $150,000<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>The balance sheet is also known as the statement of financial position or statement of financial condition. It is a financial statement that gives a snapshot of a company\u2019s assets, and its sources of capital, i.e., liabilities and shareholder\u2019s equity,&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-4365","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Assets, Liabilities &amp; Equity Explained | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Understand the balance sheet components, including assets, liabilities, and equity, and their role in a company\u2019s financial structure.\" \/>\n<meta name=\"robots\" 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