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The financial status of any company is measured by the amount of resources it has along with any claim to those resources the company may have. Claims are also known as equities. So the company financial status would be its economic resources plus the equities, which can be of two types irrespective of the nature of business. These are creditor’s and the owner’s equity. Economic resources are thus made up of two components: creditor’s plus owner’s equity.  

In accounting terms, the owner’s equity is also called their ‘assets’ and the creditor’s equity is known as the company’s ‘liabilities’. So the standard accounting equation stands at: Assets=Liabilities + Owner’s Equity.  As in any equation, both sides of the equation have to be equal. This equation is important if you wish to analyze the financial health of your company through its daily business activities.

Let us look at an important financial aspect of any business. Assets of a company are its economic resources from where they can earn income in the future. An example of this is real estate or any other property which the company owns, which they can rent out if they want. If the company is owed money, then it is entered under a heading, called accounts receivable, which is purely monetary in nature. However, there are many assets which a company may own which are not tangible or physical in nature. Copy rights, trademarks and patents are some examples of this type of assets which are equally valuable as an economic resource.   

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