Yukinori Ikeda

This paper examines how we should define the liability and the equity, and how we should interpret and apply the definition of both. Moreover, I explore how to distinguish between liability and equity, based on the combination of definition of liability and equity. In many cases, the liability is defined as obligation to transfer assets or provide services in the future. However, problems of interpretation and application of the definition arise when liability is defined as obligation. Therefore, we need reexamination of the concept of obligation in the definition of liability. On the other hand, equity is often defined as ownership interest, as well as residual. But even in this case, problems of interpretation and application of the definition of equity arise. In addition, after we define the liability and the equity, we should examine the way of distinguishing liability, equity and revenue in trial balance. However, the third category is caused when there is repetition within the range of the liability and the equity, and when even revenue is defined in addition to the liability and the equity the fourth category is caused. Therefore, a definition of either the liability or the equity is used to divide the liability or the equity, and a definition of the other is used to divide the equity and the revenue.