CHAPTER 3:

ACCOUNTING EQUATION
& ACCOUNTING
CLASSIFICATION

PREPARED BY: NURUL HASSANAH BINTI HAMZAH

ACCOUNTING EQUATION
CURRENT
LIABILITIES
CAPITAL
CURRENT
ASSET
OWNER’S
ASSET LIABILITIES PROFIT
EQUITY
NON-
NON- LOSSES
CURRENT
CURRENT LIABILITIES
ASSET DRAWING

ACCOUNTING CLASSIFICATION
 Assets Liabilities Owner’s
(RM) (RM) Equity
(RM)
CALCULATE THE
100,000 60,000
MISSING ITEMS
USING THE 80,000 30,000
Accounting 100,000 200,000
Equation 65,400 30,000
58,000 23,000
400,000 25,000
 Expanded accounting Equation 4
INCOME

Assets= Liabilities + Owner’s Equity

Assets = Liabilities+ Capital +/(-) Profit/Loss

REVENUE OTHER INCOME

Assets = Liabilities+ Capital + (Income – Expenses)

THEREFORE,
Derive from
Assets + Expenses = Liabilities + Capital + Income Derive from sale performance of
of goods services (service
(Example: Jun 19, part A, question 6) businesses)
Assets + Expenses = Capital + Income + Liabilities
91, 440 + 76 980 = 50,300 + INCOME/REVENUES + 40, 675
INCOME/REVENUES = 91, 440 + 76 980 - 50, 300 – 40 675
= 77 445
 NCA is defined as asset that were
Non- bought not primarily to be sold but to
NCAfor a long
be used in the business
Current
Asset period of time
Land, Building, machinery, equipment,
furniture, fixtures & fittings
INTANGIBLE
TANGIBLE ASSET ASSET (no
(physical) physical
represents the value of all assets that
are reasonably expected to be substance)
Current converted into cash within one year in
assets the normal course of business.
Bank, debtor, cash,
INVESTMENT (Long stock/inventory,
prepaid
Term expenses
Loan and & accrued revenue
Fixed Deposit)
 Intangible assets are assets that
Intangible are not physical in nature.
assets patent, trademark and goodwill
LIABILITIES

NON - CURRENT LIABILITIES

• are debts which are not expected to be settled
within the next year.
• Example: Long term loan
LIABILITIES
Amounts owed
by the business
CURRENT LIABILITIES
• debts which are to be completely settled within
1 year.
• Example: Creditors / Account Payable, Bank
overdraft, short term loan, prepaid revenue,
accrued expense
 OWNER’S EQUITY = CAPITAL +/(-)
ACCOUNTING (BALANCE
PROFIT/(LOSSES) SHEET) EQUATION
- DRAWINGS

OWNERS’ EQUITY
Increase in Decrease in
CAPITAL DRAWING
 Amount of
assets (cash or
 Amounts
invested by the
owner in the
owner’s owner’s goods or fixed
assets) are
taken out from
business for the
acquisition of equity equity
PROFIT/LOSS
the business by
the owner for
assets to the his/her personal
business • Profit • Drawing use.

• Capital • Losses
Effects of transactions on the accounting
equation 10

There will be either

Every transaction an increase or
will have a double decrease in assets,
effect on the expenses, capital,
accounting equation revenues or
liabilities
Example Effects of Transactions (Jun 19, Part B
Question 2a) 11

DATE EFFECTS
INCREASE DECREASE
2 ASSET & OWNER’S EQUITY

6 ASSET ASSET

11 ASSET & REVENUE

15 ASSET & OWNER’S EQUITY

16 EXPENSES ASSET

20 EXPENSES, ASSET & OWNER’S EQUITY

FORMAT (HORIZONTAL ONLY) OF SOFP &
SOPL (PAGE 88 & 89)

To show the To determine the

Purpose of SOFP

Purpose of SOPL
financial position gross and net
of a business in profit/loss of the
terms of its business
assets, liabilities
and capital at
the certain date