Why is it that asset is equal to liabilities + equity, where in fact liabilities are expenses?
submitted by yvone

rizwan

According to the accounting equation, assets = liabilities equities. It proves that assets, including all stock, debtors, prepaid etc. should be equal to all of your creditors, equity balance, and long term liabilities. If you purchase any asset on credit basis subsequently your asset account will be debited (increase) with an increase of your liability, resulting in balance of your equation. Similarly, if any expense has been incurred, it will reduce accounting profit and result in a decline of your retained earnings . The overall effect will be the same as mentioned above ( increase in liability, decrease in equity).

addisu fanossie

Assets equal equities because it has to be paid from current or non current assets. That's why assets equal equities or liabilities plus capital in the accounting equation.