s at the heart of every business. The accounting equation states that a company's assets are equal to its liabilities plus its equity. This fundamental mathematical equation is the core of every business valuation. On the balance sheet, assets are listed on the left, and liabilities and equity are listed on the right. The two figures always match. As with the income statement, mathematics is used to calculate the value of the items appearing on the balance sheet, but it is not used to determine what those items are. Prepaid insurance, pension expenses and other complicated items rely on mathematical calculations for results.
Preparing the financial statements is only the first application of mathematics relating to their use. The second application comes in the interpretation of the statements. Financial statements are analyzed by management, employees, investors, customers and others interested in the company. Because of the accounting standards used in generating the information on the financial statements, they are considered an important way to gauge one company's performance against its history as well as against
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