ACCOUNTING EQUATION

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ACCOUNTING EQUATION

ASSETS = LIABILITIES + OWNER'S EQUITY

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ASSETS

It is classified into 2 categories which are Non-Current Assets and Current Assets.

NON-CURRENT ASSETS

It is the assets which is having the useful life for more than 12 months.

Example: Buildings, Premises, Vehicle, Furniture, etc

CURRENT ASSETS

It is the assets which is having the useful life for less than 12 months.

Example: Closing Inventory, Accounts Receivable, Cash, Bank, etc

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LIABILITIES

It is the debts that owed by company to the other parties.

it is also classified into 2 categories which are Non-Current Liabilities and Current Liabilities.

NON-CURRENT LIABILITIES

It is the debts which is owing by the business for more than 12 months.

Example: Bank Loan, Mortgage Loan, etc

CURRENT LIABILITIES

It is the debts which is owing by the business for less than 12 months.

Example: Accounts Payable, Bank Overdraft, etc

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OWNER'S EQUITY

It is the part that recording for how much the business owner had invested into the business.

The items that recorded into the element such as Capital, Drawings, Net Profit / Net Loss, etc

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EXERCISE

The total amount for assets is RM 12,000. The amount that invested by the owner was RM 10,000. Therefore, what is the value for Liabilities?

ASSETS = LIABILITIES + OWNER'S EQUITY

RM 12,000 = LIABILITIES + RM 10,000

LIABILITIES = RM 12,000 - RM 10,000

LIABILITIES = RM 2,000