Week 2 - Assets, Liabilities and Equity Flashcards
What is an asset?
A resource available and controlled by the business, with the expectation to produce future economic benefits
Why are assets bought or created?
To increase the business’s value or to benefit their operations
What could an asset be?
Land and buildings, raw materials, cash balances, cars and other vehicles, machinery and tools or office equipment
What is a current asset?
An asset acquired with the intention of sale, or conversion into cash, within a relatively short amount of time - usually under a year
What is a non-current asset?
An asset that will be held for more than a year
What is a liability?
A present obligation of the business where the settlement of which is expected to result in the outflow of resources embodying economic benefits
What could a liability include?
Bank borrowing, purchases of inventory from suppliers not yet paid for, electricity supply not yet paid for, tax payable to the government
What is a current liability?
Settled within one year after the balance sheet date
What is a non-current liability?
Settled after more than one year after the balance sheet date
What is equity?
The residual amount after deducting all of the business’s liabilities from its assets
What is the accounting equation?
Assets - liabilities = equity
