Students with no previous knowledge of accounting often have considerable difficulty in appreciating the rationale of the debit/credit technique and its implications in relation to basic double entry theory. In performing the task of accounting for assets, one account for just these two concepts, namely, (i) assets themselves, and (ii) the rights to ownership of the assets. The term "equities" has been used up to the present as the one most appropriate to convey the notion of this ownership of or rights to assets. Thus, one can get as the interpretation of this twofold aspect of this positive notion of assets, the first expression of the basic accounting equation, that is, assets are always equal to equities. The right of ownership of assets constitutes a source of claim upon them, and these claims can be distinguished as resting in two main categories, designated "liabilities" and "proprietorship." That is, equities is equal to liabilities plus proprietorship, and hence, assets is equal to liabilities plus proprietorship.

A balance sheet, whatever else it may be or purport to be, sets out, as at a certain point of time, the sources from which funds have been derived in the past and the ways in which such funds have been applied or employed. Before discussing the meaning of "funds" in this context it is worth recalling that this view of the balance sheet reflects the point of view that an accountable entity is regarded as distinct from its owners, managers, employees, creditors and any other persons with whom "it" may have dealings, and that "it" is regarded as being capable of possessing things and having rights against persons and other accounting entities. The balance sheet, then, is a statement setting out, on the one hand, the amounts of funds which a hypothetical, or better, perhaps, a conceptual enterprise has derived from creditors of various kinds and proprietors, and, on the other, the various ways in which those "funds" have been embodied with varying degrees of permanence by or on behalf of the enterprise. This approach appears to clear up a difficulty which many people, including, especially, students, experience, namely, that of conceiving a decrease of cash as a source of funds and an increase as an application, for, if the conceptual nature of funds is accepted, there remains no ground for confusion between "funds" and "cash." To eliminate all possibility of confusion, perhaps a new term altogether is needed to express the concept.