I understand that assets and equity both have to do with the value in my organization. Why don’t they match?

Assets are items that your company owns. These can be tangible or intangible, and they can be current or capital. See the glossary for more detailed definitions.

Equity, also known as Net Assets, represents the organization’s residual value – the amount of value left over after Liabilities have been subtracted from what you own.

If your organization had no liabilities, then its assets would equal its equity. This may be the case for very tiny organizations, but otherwise rarely happens. Most organizations accrue liabilities in the normal course of day to day operations.

For instance, if you open a credit account with a supplier, they will invoice you for goods or services and allow you a period of time – often a month – in which to pay. For that month, you are officially in debt, although you aren’t in any trouble! Your balance sheet needs to show that the supplier has a claim on a portion of your assets. You own a certain amount of cash, receivables and other assets… but your organization’s residual value is lower by the value of the outstanding debt.