The Accounting Equation Flashcards
The accountin equation consist of?
Assets, liabilities and capital
ASSETS - LIABILITIES = CAPITAL
Assets+Expenses = Liability+Income+Capital
What is Capital?
The owner of new businesa will put some money into venture to get started. As business starts trading any profits made by business is added to the capital and any money owned are deducted
What is Business Entity Concept?
The owner and business are treated as two seperate entities.
In the financial statement the capital is treated as loan to the business. Owners loan is kept permanantly until business is sold
What is asset?
An asset is an item of monetary value which is owned and used to operate the business
What is Debtors (Receivables)?
Is a customer who owes the firm money for goods or services which have been sold on credit.
Another type of ASSET.
Short term debt is classed as asset, will be settle by payment in a month
Debit value
What is Liability?
Is an amount awed by the firm to a third party, e.g. loan, bank overdraft, supplier
What is Creditor (Payables)?
A supplier from whom the firm bought goods or services on credit.
It carries credit balance
It classed as Liability
What is “net assets”?
Assets - Liabilities
What is current asset?
Asset which expected to last or be in use for less than a year.
Examples: Stock for resale, debtors, bank, cash
What is non-current asset?
Asset which is owned and used by the firm on a long term basis to generate profit. It will be kept by the firm for more than one accounting year.
Examples - premises, plants and machinery, fixtures and fittings, motor vehicles, equipment.
What is Drawnings?
The amounts withdraw by the owner during the period
Non current liability?
Is a debt owned to 3rd party which will be repaid after the next accounting year.
Example - bank loan, debenture, mortgage
Current liability?
Is a short term debt, which will be repaid within one accounting year.
Examples - creditors, bank overdraft, VAT
Financial position balance sheet?
Statement of the firm’s assets and liabilities on a specific date.
Assets less liabilities equals capital
Always carry a heading showing the name of the firm and date it was prepared at. Always should be discribed as ‘as at (date)’.
Assets are recorded in the order of performace, whilst liabilities are grouped according to whether they are short or long term. Capital appears last.
Working Capital?
Current assets - current liabilities
