Assets = Liabilities + Owners Equity. Assets – Liabilities = Owners Equity
As we said, there are two kinds of liabilities. Current Liabilities and Long-Term Liabilities.
Long-term liabilities are loans and mortgages you have taken out with a term greater than twelve months. They may include vehicle loans and long-term notes payable such as a credit line or mortgage.
If it was a mortgage for example, as you make payments the balance on the liabilities section of the balance sheet would go down, and the equity on the asset side would go up. Interest paid would be shown as an expense on the income statement.
More tomorrow!