Business transactions

Question 1

What is the accounting equation?

Answer 1

Assets - Liabilities = Capital

Question 2

What are assets?

Answer 2

Items owned by the business and money owed to the business.

Question 3

What are liabilities?

Answer 3

Amounts owed by the business to other organisations or people.

Question 4

What is capital?

Answer 4

Capital is the value of the business, and also represents the amount invested in the business by the owner.

So the business assets minus liabilities equal the value of the business.