Equations

Question 1

Accounting Equation

Answer 1

Assets = Liabilities + Equity

Question 2

Extended Accounting equation

Answer 2

Assets = Liabilities + Equity + Profit - Drawings

Question 3

Profit/Loss calculation

Answer 3

Profit (or loss) = Total Revenue - Total Expenses

Question 4

Retained Earnings

Answer 4

Closing retained earnings = opening retained earnings + net profit - dividends paid

Question 5

Cost of Sales

Answer 5

(Starting Inventory + Purchases) - closing inventory

Question 6

Gross Profit

Answer 6

Revenue - cost of sales

Question 7

Operating profit

Answer 7

gross profit - operating expenses

Question 8

Net profit

Answer 8

operating profit - finance costs (eg interest)

Question 9

Net book value

Answer 9

Cost - accumulated depreciation

Question 10

Straight line method

Answer 10

(cost - residual value) / estimated useful life

Question 11

Reducing balance method

Answer 11

Net book value x Fixed rate (%)

Question 12

Equity

Answer 12

Share capital + Retained Earnings

Question 13

Working Capital

Answer 13

Current assets - current liabilities