Lecture 1 - Accounting Equation

Question 1

Capital is

Answer 1

what a firm is worth

Question 2

explain how capital = assets - liabilities

Answer 2

assets is all money the company owns , if they sells this they get money- after they get money they pay back liabilities - whatever is left over goes to investors

Question 3

capital is also

Answer 3

the value of investment of investors

Question 4

rearrange the equation to what we were used to in A level

Answer 4

Assets = Capital + Liabilities

Question 5

explain why assets = capital + liablities

Answer 5

asset is what a business owns - when they sell this they get money

first they pay liabilities and the rest is paid to capital

Question 6

explain internal and external claim

Answer 6

once business sells / gains money from their assets they first pay liabilities ( external claim , other people that they owe) then the rest is paid to capital (internal claim, the owners)

Question 7

explain in simple terms how assets= capital + liabilities

Answer 7

Assets (your stuff) = Capital (what’s truly yours) + Liabilities (what you owe).

It’s like saying, everything you have (toys, cookies, money) is either truly yours (capital) or promised to someone else (liabilities).

Question 8

don’t forget to do question examples