Why are the assets of a business equal to the capital plus liabilities?

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1020495

2026-03-09 10:21

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Basic accounting equation = assets = liabilities + capital

it is so because capital as well as other liabilities have to be paid by the business at the dissolution time of business and at dissolution time or liquidation time business must have assets equal to liabilities plus owner's equity to pay all liabilities of business without going insolvent otherwise business will become insolvant and somebody will not get all it's liabilities completely cleared at the time of liquidation of business.

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