4. ASSETS = CAPITAL + LIABILITIES
Assets can be thought of as the resources or the โstuffโ
required in order to set up and run the business
Assets can consist of:
ASSETS
BUILDINGS MACHINERY STOCK
AMOUNTS OWING
FROM CUSTOMERS
5. ASSETS = CAPITAL + LIABILITIES
โข Capital can be thought of as the amount of those resources
or assets supplied by the owner of the business
โข Capital may also be referred to as OWNERS EQUITY
CAPITAL
6. โข If the owner of the business has supplied all the resources
initially to start up the business then the equation will be;
CAPITAL
ASSETS LIABILITIES
7. ASSETS = CAPITAL + LIABILITIES
โข IF RESOURCES OF THE BUSINESS HAVE BEEN SUPPLIED BY SOMEONE OTHER
THAN THE OWNER, THEN AMOUNTS OWING TO THESE OTHER PEOPLE IN
RESPECT OF THOSE RESOURCES SUPPLIED ARE REFERRED TO AS LIABILITIES
โข Liabilities can include:
LIABILITIES
LOANS
AMOUNTS
OWING TO
SUPLIERS
AMOUNTS
OWING FOR
EXPENSES
8. ASSETS CAPITAL LIABILITIES
ACTUAL
RESOURCES/
STUFF IN THE
BUSINESS
WHO HAS CLAIMS TO THOSE ASSETS
OR RESOURCES IN THE BUSINESS
โ WHO SUPPLIED THEM?
THIS WILL INCLUDE BOTH THE OWNERS
CLAIMS AND OTHER PEOPLES CLAIMS
9. ASSETS = CAPITAL + LIABILITIES
โข The accounting equation should always balance.
โข This is because we are looking at the same thing but from
two different places or points of view.
โข Therefore, no matter how many transactions occur, both
sides of the equation should always balance.
10. ACCOUNTING EQUATION
EXAMPLE
โข If on the 1/1/2012 Adam started a business. He deposited $10,000 into a
bank account he opened specifically for his business.
ASSETS
$10,000
CAPITAL
$10,000
LIABILITIES
$0
CASH IN BANK
+ $10,000
MONEY INVESTED
BY OWNER
+ $10,000
11. ACCOUNTING EQUATION
EXAMPLE
โข If on the 5/1/2012 Adam bought a computer for $3,000 and he paid for this
by cheque.
ASSETS
$10,000
CAPITAL
$10,000
LIABILITIES
$0
COMPUTER = $3,000
BANK = ($10,000-$3,000)
=$7,000
TOTAL=$3,000+$7,000=
$10,000
UNCHANGED
12. BALANCE SHEET(STATEMENT OF
FINANCIAL POSITION)
โข ASSETS
โข COMPUTER $3,000
โข CASH AT BANK ($10,000 - $3,000) $7,000
โข TOTAL ASSETS $10,000
โข CAPITAL $10,000
13. ACCOUNTING EQUATION
EXAMPLE
โข If Adam purchased some stock for $500 from a supplier on credit
ASSETS
$10,500
CAPITAL
$10,000
LIABILITIES
$500
COMPUTER $3,000
BANK $7,000
STOCK $500
TOTAL $10,500
UNCHANGED
TRADE PAYABLES $500
ADAM OWES HIS
SUPPLIER $500