Assets, Liabilities and Equity Flashcards
Define an asset
An asset is a resource available and controlled by the business, with the expectation to produce future economic benefits
Why are assets bought or created?
To increase the business’ value, or to benefit their operations
What is a current asset?
An asset that has been acquired with the intention of sale, or conversion into cash, within a relatively short amount of time (usually less than a year)
What is a non-current asset?
An asset that will be held for more than a year
What is a liability?
A present obligation of the business, where the settlement of which is expected to result in an outflow of resources embodying economic benefits
What are some examples of liabilities?
Bank borrowing, purchases of inventory from suppliers that are not yet paid for, tax payable to the government e.t.c
What is a current liability?
A current liability is due to be settled within one year after the balance sheet date
What is a non-current liability?
A non-current liability will be settled after more than one year after the balance sheet date
What is equity in terms of assets and liabilities?
The residual amount found after deducting all of the entity’s liabilities from the all the entity’s assets
What is the accounting equation?
Assets - liabilities = equity
What is the accounting equation said to be the foundation of?
The double-entry accounting system
What does the double-entry accounting system ensure?
That the balance sheet remains balanced - each entry on the debit side should have a corresponding entry on the credit side
What is a tax payable?
An obligation to pay cash to HMRC
