Balance Sheet Equations are used to determine the financial position of a business by measuring its assets, liabilities and equity. This equation is composed of three components: Assets = Liabilities + Owner’s Equity. Assets refer to items that a company owns such as cash, accounts receivable and inventory; liabilities refer to debts owed by the company such as accounts payable, taxes and loans; and owner’s equity (also known as shareholders’ equity) is the amount remaining after accounting for liabilities. It is an important tool for evaluating a company’s financial stability and can be used to inform strategic decision making.