Remember funds can be acquired from two sources, owners and creditors. Owner funds are referred to as Stockholders' Equity and creditor funds are referred to as Liabilities. Assets are resources owned or controlled by the company. Assets have the ability to provide future benefits to the company. For example, cash can be used to purchase inventory.
Liabilities are funds obtained from creditors.
They represent the creditor claims on the assets of the company. Stockholders' Equity is the owners' claims on the assets of the company. Owners' claims on the assets of a company are viewed as a residual claim. That is, creditors have first claim, then after all liabilities are satisfied, owners have a claim on what is left. Funds paid into the company by the owners called paid in capital , and 2.