Lecture 2 Flashcards
What is the accounting equation?
Assets – Liabilities = Ownership Interest
What is an asset?
An economic resource is a right that is capable of
producing economic benefits.
What are some examples of assets?
- Land and buildings owned by the business.
- Cash held in a bank account.
- Amounts due from customers with a promise to pay.
What is a liability
liabilities are debts or financial obligations that arise during the course of business operations. Liabilities are typically settled over time through the transfer of money, goods, or services.
What are some examples of liabilities?
- Bank borrowing by the business.
- Sales tax (VAT) payable by the business based on
past sales.
What is revenue
Revenue refers to the income generated by an entity from its normal business activities, such as the sale of goods or services, before any expenses are deducted.
What is an expense?
An expense is the cost incurred by an entity in the process of generating revenue or maintaining its operations.
- They typically in a decrease in the entity’s economic resources, such as cash or assets.
What is equity?
Equity refers to the legal rights and financial stake that an individual or entity has in a business or asset. It represents the proportion of a company or asset that an owner holds.
Net impact on busineess transactions equations
Revenue - expenses = Profit
What are trade receivables?
Amounts a company is owed by customers for goods or services provided on credit (current assets).
What are trade payables?
Trade payables: Amounts a company owes to suppliers for goods or services received on credit (current liabilities).
