To begin with, the financial position of this company will be measured through the use of assets- that which it owns, liabilities- that which will comprise of the owner’s equity and that it owe others- the difference between assets and liabilities (Albrecht et al, 2011).   With those considerations, it then implies that the basic accounting equation will be the first method which is to be used in accounting all the three. The reason for this is because it offers a simple means of understanding how the above three parameters will amounts as related to each other. The accounting equation will therefore be;

Assets = liabilities + owners equity.

            This then means that as much as the information is concerned, the assets will be termed as all the things the company currently owns. An example of this includes the accounts receivables, all the prepaid insurance, cash, goodwill, buildings, land, and equipments. Conversely, considering the accounting equation, what we can say is that the equation reflects the amount of assets which must be available so as to equalize to the total liabilities together with the stockholder’s equity (Albrecht et al, 2011). Moreover, liabilities will reflect the obligations of the company which basically totals to what the company owes. Such will comprise of loans or notes and accounts payable, income tax payable, salaries and wages, income and interest payable. The liabilities of this company can be viewed in two ways i.e. a source- alongside with the stockholder’s equity – of the assets of the company. Equally it can be regarded as the creditor’s equity against the assets of the company. Within this perspective, the owner’s or the stockholder’s equity reflects the liabilities will be left over after deducting liabilities from the assets.

            Assets – liabilities = Owner’s equity

            The owners equity from this method will be reflect or report the amount which is invested by the company by its owners as well as the company’s cumulative net income which has not been distributed withdrawn to its owners (Albrecht, 2007). Therefore, in case the company will be keeping accurate records, it will make the accounting equation to be in balance. The balance will be maintained due to the fact that its every business transaction which will affect its accounts. For instance, in case the company will be borrowing money from the bank, its assets will be in the position on increasing just the same amount the its liabilities.  In this case, if the company purchases inventory in cash terms, one of its assets will decrease as the other will be increasing. As much as at least two accounts will be affected by every individual transaction, this system will be referred to as the double-entry accounting (Albrecht, 2007).  Finally the company will keep track of the entire transactions through recording them general ledger.

            Another method which will be depended upon is use of the income statement.  And also the balance sheet can be used. This will reflect the above accounting equation. It thus reports all the assets, liabilities and the stockholders’ equity of the company as at a certain period of time. It thus assist in showing the total amount of assets of the company will have to be equal to the amount of liabilities together with owner’s equity.

            On the other hand, the income statement will be reporting the revenues as well as the expenses of the company which results from the net income obtained. Although the balance sheet will be dealing with one point in time, this statement will be covering a period of time. This is to mean that it will be explaining part of the changes which will be encountered in the owners’ equity during the time intervals amongst the two balance sheets (Albrecht et al, 2011).