Anything of value controlled by a business is referred to as its assets. This could be cash or anything that could be converted to cash. For a new business, assets originate from two possible sources:
Those who contribute assets to a business have legal claims on those assets. Since the total assets of the business are equal to the sum of the assets contributed by investors and the assets contributed by creditors, the following relationship holds and is referred to as the accounting equation:
Assets = Liabilities + Owners’ Equity
Valuables = Claims on the Valuables
The accounting equation holds at all times over the life of the business. When a transaction occurs, the total assets of the business may change, but the equation will remain in balance. The accounting equation serves as the basis for the balance sheet.
Instead of trying to keep track of assets and liabilities as plus or minus values in a single column, double-entry bookkeeping, such as the RB system, uses Debit and Credit columns. In double-entry accounting, the total amount of each transaction is entered twice: once in the Debit column and once in the Credit column, with each entry assigned to a different account in the chart of accounts.