In accounting terms, what does the right side of the balance sheet represent?

In accounting, the balance sheet is structured to provide a snapshot of an organization’s financial position at a specific point in time. The right side of the balance sheet represents liabilities and equity. This part is crucial because it details how the organization finances its assets, including both what it owes (liabilities) and what is owned by the shareholders (equity).

Liabilities encompass all of the debts and obligations a business has, such as loans, accounts payable, and other financial commitments. Equity represents the residual interest in the assets of the entity after deducting liabilities, which includes retained earnings and common stock. Together, these components show how much financing comes from creditors versus the owners of the business.

The left side of the balance sheet lists the assets, which are resources owned by the business. It must always balance with the right side, reflecting the accounting equation: Assets = Liabilities + Equity. This relationship highlights the fundamental principle that all assets are financed either through borrowing (liabilities) or through the owners' investment (equity).