What is Asset, liability and Equity in a business?

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Pupils who started to take out POA as a new subject in Secondary 3 may be fearful of this subject. This subject, unlike mathematics and other science subjects which were very familiar to them but POA it a totally new subject.

But I always feel that pupils are in the right track when they take up this subject.


Why ? 

Remember everyone of us needed financial guidance regardless of the nature of the jobs that you are holding.  A good grasp of the POA subject will make you wiser as a financial planner in future.  Of course provided that you are seriously learning the subjects.  

So, let us start to learn the basic concept of POA.


Assets

Assets are resources owned to carry out business activities.

Examples of assets are :
Land
Property
Plant and equipment {computers, printers]
office equipment {funiture, shelves}
Motor vehicles
Inventory
Trade receivable
cash in hand
cash at bank

Liabilities

Liabilitiies are amount owed by the business to any external parties/other businesses.

Examples of liabilities are :
Mortgage loan
Long Term borrowing
Trade Payables
Other Payables

Equity

Equity are the amount of fund or capital provded by the owner and the profit generated by the business.

Question 1:
Decide whether the following are Assets, Liabilities 

 1 Property
2 Land
3 Fixtures and Fittings
4 Other payables
5 Trade receivables
6 Cash in hand
7 Long Term borrowing
8 Other receviables
9 cash at bank
10 Equipment
Answer : Assets = 1,2,3,5,6,8,9,10 The rest are liabilities

Based on the Accounting Equation :


Assets = Equity + Liabilities

 Q2 Issacs has the following assets and liabilities




Cash in hand


560
Cash at bank 780
Property 10000
Trade Payables 5000
Inventory 6100
Long-term Borrowings 10000
Fixtures and fittings 7000
Trade Receivables 8000
i What are the Assets and Liabilities of the business
ii What is the  Equity of the business?


Answer: 

 (i)  Assets = cash in hand, cash at bank,Property, inventory, fixtures and fittings, trade receivables
     Liabilities = Trade Payables, Long term borrowings

 (ii) Based on the Accounting equation :

 Assets = Equity + Liabilities

 Mathematically : 

 Equity = Assets - Liabilities

 Equity = (560 +780+10000+6100+7000+8000) - (5000+10000)
           =32,440 -15,000
           = $17,440

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