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Accounting Classification & Accounting Equation
Accounting Classification & Accounting Equation
&
ACCOUNTING EQUATION
LEARNING OUTCOMES
❑ Assets
❑ Owner’s Equity
❑ Liabilities
❑ Revenues
❑ Expenses
Assets
=
Properties owned by a business
ASSETS
ASSETS
CURRENT ASSETS
Cash and those that can be converted
NON-CURRENT ASSETS into cash within 1 year
To be used on long-term basis (<12 months)
/ Useful life = >12 months E.g.: Inventories, accounts
receivables/debtors, cash at bank, cash
in hand
TANGIBLE NCA
INTANGIBLE NCA
Assets that have physical INVESTMENT
Assets that have no
substance Sum of money placed in other
physical substance
E.g.: Land, building, organisation to get returns
E.g.: Goodwill, trademarks,
equipment, motor E. G.: Fixed deposit, ASB
franchise, patent
vehicles, machinery
Owner’s Equity
=
Fund supplied by the owner to the business
Owner’s equity
✓ Capital : amounts contributed by the owner to the business (in
the form of cash or other assets)
✓ Profit = Increase the capital
✓ Losses = Reduce the capital
✓ Drawings : cash or goods taken by the owner for personal use.
Statement of
Financial Position
(SOFP)
* Shows the financial position of a
business at a particular point of time.
1) ASSETS
2) LIABILITIES
3) OWNER’S EQUITY
Revenues
=
Income generated by the business,
either from trading or service
businesses.
E.g.: Sales, commission received, interest
received
REVENUES
ADMINISTRATIVE
E.g. - Electricity and water,
FINANCE COSTS
E.g. - Interest on loans
rental expense
2.
Statement of
Profit or loss
(SOPL)
* Shows the financial performance
(Profit/Loss) of a business during a
period.
1) REVENUES
2) EXPENSES
Accounting equation
Basic Accounting Equation:
Every Transactions
=
Any questions?