ACCOUNTING EQUATION

ACCOUNTING EQUATION

• ASSET = LIABILITIES + OWNER'S EQUITY

ASSET

• It is a real account.
• It is divided into 2 categories which are NON-CURRENT ASSETS & CURRENT ASSETS.
• Non-Current Assets is also called as Fixed Assets where the useful life is more than 10 years.
• Example:Land, Vehicles, Furniture,Building, Machine,etc
• Current Assets is also including Liquidity Account and the useful life is less than 10 years.
• Example: Accounts Receivable, Closing Inventory, Cash & Bank.

LIABILITIES

• It is also a real account, and it is a debt for the organization.
• It is divided into 2 categories which are NON-CURRENT LIABILITIES & CURRENT LIABILITIES.
• Non-Current Liabilities is also called as Long-Terms Liabilities where the useful life is more than 10 years.
• Example:Bank Loan, Mortgage Loan,etc
• Current Liabilities is the debt that owes for useful life is less than 10 years.
• Example: Accounts Payable, Bank Overdraft, etc

OWNER'S EQUITY

• It is the part related to the owner of the organization about the information on how much it invested and how much it gain or loss in the business for the accounting period.
• Example: Capital, Net Profit/Net Loss, Drawings, etc

Example in Calculation

• Assets = RM 15,000 , Owner's Equity = RM 9,500 , Liabilities = RM ?
• Assets = Liabilities + Owner's Equity
• RM 15,000 = Liabilities + RM 9,500
• Liabilities = RM 15,000 - RM 9,500
• Liabilities = RM 5,500