The Accounting Equation Flashcards
What is the accounting equation?
ALOE
A=L+OE
Asset=Liability+Owners Equity
What is Asset?
A present economic reasource controlled by the entity that has the potential to produce future economic benefits. (Something you have that can generate money)
It can be a physical resource like a vehicle, or an intangible resource like a trademark.
What is Liability?
A present obligation of the enitity to transfer an ecomonic resource. (Stuff/money you owe)
It’s usually a contractual arrangement, eg. a loan. Therefore the business is obligated to pay back the money they have borrowed.
What is Owner’s Equity?
Residual interest in the asset of the entity after the liabilities are deducted. (what you have paid)
It’s what is left over for the owner once a firm met all its liabilities.
What is Current Asset?
A present economic resource controlled by the entity that is resonably expected to be converted to cash, sold or consumed within the next 12 months after the reporting period.
What is Non-Current Asset?
A present economic resource controlled by the entity that is not held for resales and is reasonably expected to be used for more than the next 12 months after the end of the reporting period.
What is Current Liability?
A present obligation of the enitity to transfer an ecomonic resource that are reasonably expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.
What is Non-Current Liability?
A present obligation of the enitity to transfer an ecomonic resource that are not expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.
What are examples of curent and non-current assets?
Current: Inventory, Cash, Accounts Receivable, etc.
Non-Current: Equipment, Vehicles, Premises, etc.
What are examples of curent and non-current liablities?
Current: Short-Term Loan, Account Payable, Bank Overdraft, etc.
Non-Current: Mortage, Long-Term Loan, etc.
