SIMPLIFYING THE DISTINCTION BETWEEN LIABILITIES AND EQUITY.

The article distinguishes liabilities and equity for hybrid financial instruments. It discusses the problem between creditors and business owners that impedes the development of distinction between liabilities and equity. It outlines the advantages of the Earned Capital Approach over the U.S. Generally Accepted Accounting Principles (GAAP) approach to distinguishing liabilities from equity. Possible objections to the prospect of classifying shareholder claims as liabilities are identified.