The Basic Accounting Equation Format is the official business definition of accounting, which is the measurement, reporting, and analysis of financial information about organizations and entities. This equation, which is also referred to as the balance sheet equation, consists of three components: assets, liabilities, and shareholders’ equity. Assets are the resources owned by a company, such as cash, inventory, and buildings. Liabilities are the obligations of the company to pay its debts, such as loans, accounts payable, and taxes. Shareholders’ equity is the difference between the company’s assets and liabilities and represents the residual value of the company to its owners. This equation is an essential part of the financial picture of the business and is fundamental to understanding the financial position and performance of the company.