Accounting Equation Flashcards
Accounting Equation
A = L + E/OE/CAPITAL
Assets
property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
Liabilities
the state of being responsible for something, especially by law.
“the partners accept unlimited liability for any risks they undertake”
Assets vs. liabilities overview
Liabilities: Existing debts a business owes to another business, vendor, employee, organization, lender, or government agency. Liabilities can help owners finance their companies (e.g., loans).
Assets: Items or resources of value that the business owns. Assets can generate revenue and provide long-term benefits to the owner (e.g., property).
Both assets and liabilities are on the balance sheet, which is one of the three main financial statements for businesses.
Examples of Liabilities
Liabilities can be short- or long-term. Typically, short-term liabilities are known as current liabilities. And, long-term liabilities are called noncurent liabilities
Examples of Current Liabilities
- short term debts
- tax liabilities
- accrued expense
- accounts payable
- Investment
- Inventory
- Cash
- Accounts Receivable
Examples of Non-Current Liabilities
- loans lasting more than year
- Deferred tax payment
- other non current liabilities (leases)
- Property
- Equipment
- Trademarks
Tangible Assets
Tangible assets are physical items that the business owns. These types of assets easily convert to cash. Physical assets include items such as inventory, equipment, and bonds.
Intangible Assets
Intangible assets are nonphysical items that do not easily convert to cash. Examples of intangible assets include logos, trademarks, patents, and business licenses.
Capital Or Owner’s Equity
The fund invested by the owner in the business or the net amount claimable by the owner from the business is known as the Capital or Owner’s Equity or Net Worth.
Expenses
An expense in accounting refers to the money spent and the costs incurred by a company in pursuing revenue. Simply put, account expenses are the costs involved in running a business, and collectively they contribute to the activities involved in generating profit.
Revenue
Is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.
