They are not expenses but represent decreases in owners' equity resulting from transactions with owners. Operating activities generally include the cash effects of transactions and other events related to the operations of the business. Investing activities generally include the cash effects of transactions involving the acquisition or disposal of long-term assets such as land, buildings, and equipment . State the basic accounting equation and describe its relationship to the balance sheet. The basic accounting equation states that assets equal equities.
Assets are items owned by the business which have value.
Equities are interests in, or claims upon these assets. Creditors' equities are classified as liabilities, and stockholders' equity is classified separately. These represent the major components of the balance sheet. A major point to remember is that economic activity will change the dollar amounts and composition of the assets, liabilities, and stockholders' equity of a business, however, the equality of the basic equation always holds. Using the underlying assumptions or concepts, analyze business transactions and determine their effects on items in the financial statements.