1. Accounting Equation
Mr. Chan starts a business
The owner

2. He 1) introduces cash into the business, and
2) borrows a bank loan to buy an office
building
$10, 000
The owner
Bank
$500, 000

3. Therefore, the business now has
$500, 000
$10, 000
So, the business is now worth
= $10,000 + $500, 000 = $510, 000
It means ASSETS of the business amounts to $510, 000.
ASSETS: Total resources of the business

4. Assets = Liabilities + Capital $510, 000 = $500, 000 + $10, 000
Accounting Equation
Assets = Liabilities + Capital
$510, 000 = $500, $10, 000
Liabilities: Resources borrowed from the Third Party.
Capital: Resources supplied by the owner.

5. Balance Sheet as at 31 December 2003
ABC Co.
Balance Sheet as at 31 December 2003
Assets
$510,000
Capital
$10,000
Liabilities
$500,000
$510,000
$510,000