Accounting – 1.2 The accounting equation | e-Consult
1.2 The accounting equation (1 questions)
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Total Assets: £8,000 (Cash) + £12,000 (Accounts Receivable) + £5,000 (Inventory) + £20,000 (Equipment) = £45,000
Total Liabilities: £6,000 (Accounts Payable) + £10,000 (Loan Payable) = £16,000
Total Equity: £45,000 (Total Assets) - £16,000 (Total Liabilities) = £29,000
What they represent:
- Total Assets: Represents everything the business owns – the resources it controls that are expected to provide future economic benefit.
- Total Liabilities: Represents the amounts the business owes to external parties (creditors).
- Total Equity: Represents the owners' stake in the business – the residual interest in the assets after deducting liabilities. It's the value that would be returned to the owners if all assets were sold and all liabilities were paid.