Scribd
Upload
14 views3 pages

Topic 8 The Accounting Equation

Uploaded by

Sadi Mohammad Tarif
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
14 views3 pages

Topic 8 The Accounting Equation

Uploaded by

Sadi Mohammad Tarif
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Topic 8: The accounting equation

Accounting Equation:

It States that after every transaction the total of assets should be equal to capital and liabilities. It
can be stated in the form of an equation which is:

Assets = Capital + Liabilities.

A= C+L, A-C=L, A-L=C

Assets: Resources owned by or owing to a business are known as assets.

There are two types of assets.

1. Current assets: Assets that have a short life and benefit of which are exhausted within one
year.

Examples:

• Inventory: Goods or products a company has in stock, ready to be sold or used in its
operations.
• Trade Receivables: Money that customers owe to a company for goods or services
already provided, but not yet paid for.
• Other Receivables (Prepaid Expense):Payments made in advance for goods or services
that will be used in the future, like rent or insurance. It is an asset until the expense is
incurred.
• Accrued Income: Income that has been earned but not yet received or recorded. For
example, if a company provides a service but hasn’t been paid by the end of the
accounting period, the income is "accrued" until payment is made.
• Bank Balance: The amount of money a company has in its bank accounts at a given
time. This includes any deposits, withdrawals, or other bank transactions.
• Cash Balance: The amount of physical cash a company has.

2. Non-current assets: Assets that have a long life and benefits of which are not exhausted
within one year.

Example:

Building, Equipment, furniture, fixtures and fittings, Motor Van


Capital: The total of resources invested into the business by its owner.

Liabilities: It represents anything owed by a business. There are 2 types of liabilities:

Current liabilities: Liabilities that have to be paid within one year.

Examples:

• Trade Payables: Money a company owes to its suppliers for goods or services it has
already received but has not yet paid for.
• Other Payables (Accrued Expense): Costs a company has incurred but not yet paid for
by the end of the accounting period. For example, if a company has used electricity in a
month but won’t pay the bill until the next month, the expense is "accrued" in the current
period.
• Prepaid Income: Money a company has received in advance for goods or services it has
not yet delivered. For example, if a customer pays in advance for a subscription or
service, the company recognizes the money as "prepaid income" until it provides the
service.
• Bank Overdraft: A situation where a company spends more money than it has in its
bank account, creating a negative balance. The company is borrowing money from the
bank, and usually, it will be required to repay it with interest.

Non-current liabilities: That do not have to be paid within one year.

Example: Bank loan.

Class Activity 1: Identify whether each item is an asset, liability or capital.

Item Asset / Liability / Capital

Cash in Bank
Inventory
Loan from Bank
Office Furniture
Owner’s Investment
Trade Payable
Building
Computer Equipment
Office Van
Wages payable
Trade receivable

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy