Podcast
Questions and Answers
What is the effect on assets when paying a creditor £70 in cash?
What is the effect on assets when paying a creditor £70 in cash?
- Assets remain unchanged
- Assets increase by £140
- Assets decrease by £70 (correct)
- Assets increase by £70
If fixtures are bought for £200 with a cheque, how does this affect capital?
If fixtures are bought for £200 with a cheque, how does this affect capital?
- Capital decreases by £200
- Capital remains unchanged (correct)
- Capital increases by £200
- Capital decreases by £400
What will happen to liabilities when goods worth £275 are bought on credit?
What will happen to liabilities when goods worth £275 are bought on credit?
- Liabilities remain unchanged
- Liabilities increase by £275 (correct)
- Liabilities increase by £150
- Liabilities decrease by £275
What is the total capital balance if the accounting equation is applied with the provided balances?
What is the total capital balance if the accounting equation is applied with the provided balances?
When J Walker lends the business £200 in cash, what occurs to the assets?
When J Walker lends the business £200 in cash, what occurs to the assets?
Flashcards
What is the accounting equation?
What is the accounting equation?
In accounting, the accounting equation represents the fundamental relationship between assets, liabilities, and owner's equity. It states that the total assets of a business are equal to the sum of its liabilities and owner's equity. This equation acts as a fundamental tool for understanding the financial health of a business, ensuring assets are always equal to the sum of the liabilities and owner's equity.
What are assets?
What are assets?
Assets represent resources owned by a business that have economic value and are expected to generate future benefits. Examples include cash, accounts receivable, inventory, and equipment.
What are liabilities?
What are liabilities?
Liabilities represent obligations or debts that a business owes to others. These debts are typically incurred to acquire assets or finance operations. Examples include accounts payable, loans, and salaries payable.
What is owner's equity?
What is owner's equity?
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How can we calculate the capital balance using the accounting equation?
How can we calculate the capital balance using the accounting equation?
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Study Notes
Post Session Activities - Transaction Analysis
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Transaction: Paying a creditor £70 in cash.
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Effect on Assets: Cash decreases by £70.
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Effect on Liabilities: Accounts payable decrease by £70.
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Effect on Capital: No change.
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Transaction: Purchasing fixtures for £200 by cheque.
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Effect on Assets: Fixtures increase by £200, Cash decreases by £200.
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Effect on Liabilities: No change.
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Effect on Capital: No change.
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Transaction: Purchasing goods on credit for £275.
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Effect on Assets: Inventory increases by £275.
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Effect on Liabilities: Accounts payable increase by £275.
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Effect on Capital: No change.
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Transaction: Proprietor invests £600 into the business.
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Effect on Assets: Cash increases by £600.
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Effect on Liabilities: No change
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Effect on Capital: Capital increases by £600.
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Transaction: J Walker lends the Business £200 in cash.
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Effect on Assets: Cash increases by £200.
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Effect on Liabilities: Loan payable increases by £200.
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Effect on Capital: No change.
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Transaction: A debtor pays £50 by cheque.
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Effect on Assets: Cash increases by £50.
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Effect on Liabilities: Accounts receivable decrease by £50.
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Effect on Capital: No change.
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Transaction: Returning goods costing £60 to a supplier.
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Effect on Assets: Inventory decreases by £60, Accounts payable decrease by £60.
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Effect on Liabilities: No change.
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Effect on Capital: No change.
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Transaction: Purchasing additional shop premises for £5000 by cheque.
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Effect on Assets: Premises increase by £5000, Cash decreases by £5000.
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Effect on Liabilities: No change.
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Effect on Capital: No change.
Capital Balance Calculation
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Trade receivables: £65,250
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Trade payables: £38,650
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Inventory: £35,280
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Premises: £160,000
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Motor vehicles: £32,250
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Fixtures and fittings: £16,900
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Plant and equipment: £8,650
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Loan: £6,590
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Bank: £9,800
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Calculate the total assets: Sum all asset balances (Trade receivables + Inventory + premises + Motor vehicles + Fixtures and fittings + Plant and equipment + Bank)
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Calculate the total liabilities: Sum all liability balances (Trade payables + Loan).
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Capital = Total Assets - Total Liabilities
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