The Accounting Equation Flashcards
What is the accounting equation
Assets = capital + liabilities
Define capital
Investment of funds with the intention of earning a return
Define profits
Excess of income over expenses
Profits are added to capital
Define drawings
Amounts withdrawn from the business by the owner
Credit transactions give rise to what?
Trade receivable & trade payable
What is trade receivable?
An asset, a balance owed to the business by a credit customer
What is trade payable?
A liability, a balance owed by the business to a credit supplier
What is a credit customer also known as
A debtor
What is a credit supplier also known as
A creditor
What are non current assets
Acquired for continuing use within the business for a period of more than one year
What are current assets
Cash or assets that are expected to be liquidated within one year
What are non current liabilities
Liabilities that mustn’t be settled within one year
e.g loan
What are current liabilities
Liabilities that must be settled within one year
e.g trade payables, overdraft
capital=
opening capital + profit + capital injections - drawings
how to calculate change in net assets
(opening assets - opening liabilities) - (closing assets - closing liabilities)
