Why is capital typically shown on the same side of the balance sheet as liabilities?

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The question asks why capital is typically shown on the same side of the balance sheet as liabilities. Let’s start with a quick description of what the balance sheet is meant to convey. It is a point-in-time reflection of the best estimate of the value of the entity for which it is prepared. The basic concept is that the business is treated as a separate entity, and it has a legal or de facto claim on financial instruments, goods, and services with determinable values. These are its assets. On the other hand, other entities (people, other corporations, governments) have legal or de facto claims on the value of the entity. Claims held by entities other than the owners of the entity are called liabilities. Claims by the owners are called capital. With these definitions in mind, we can see that the balance sheet “balances” claims the entity has on others (“assets”) against claims others have on it (both “liabilities” and “capital”). Therefore, it is conventional to place assets on the left side of the sheet and both liabilities and capital on the right side.

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