Assets liabilities capital

CXC CSEC PRINCIPLES OF ACCOUNTS NOTES

1. Assets, Liability and Capital

1. Assets
Anything that has economic value, that a business owns or has use of in generating
income.
2. Liability
Amounts owed to lenders and suppliers by the business.
3. Capital
Cash or other assets introduced into the business by the owners to generate
income.

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2. Scenario 1
Conner, the Entrepreneur decided to open a business selling soft drinks. The business is called
Cee Drinks



CONNER THE BUSINESSMAN/THE OWNER

 Conner has $1000.00 and a Cooler worth $500, both of which he plans the invest in the
business.

$1000.00 + $500

 He also decided to purchase an Ice maker on credit from Keenan Ltd for $800.00


Ice Maker $800 Keenan Ltd

 He also bought 10 cases of soft drinks @ $24.00 per case paying with cash. The soft
drinks purchased is the stock of the business.
Stock are the items which are bought (purchased) to be sold to customers

3. Cee Drinks



Capital
Cash or other assets introduced into the business by the owners to generate
income.

Conner introduced $1000.00 in cash and a Cooler worth $500, as the above definition states
these items are the Capital of the business, thus total capital is $1500.00.



Assets
Anything that has economic value that a business owns or has use of, in generating income
Cee Drinks owns or has use of the following items


Cooler - $500.00
Cash Balance $760.00($1000-240)
Ice maker $800.00
Stock (Soft drinks) $240.00
Total Assets = $2300.00
$1000.00 + $500 = $1500.00

4. Liability
Amounts owed by the business to lenders and suppliers.
Creditor a Liability, is person or Business to whom money is owed.

Cee Drinks owes Keenan Ltd for $800.00 the Ice Maker

Keenan Ltd is a Creditor of Cee Drinks

5. The Accounting Equation
The Accounting Equation also called the Balance Sheet Equation states that: -
Assets = Liabilities + Capital
Assets – Liabilities = Capital
Liabilities = Assets - Capital

Let’s look at the equation using Cee Drinks Shop

Assets


Liabilities
.
Capital

Cooler - $500.00
Cash Balance $760.00($1000-240)
Ice maker $800.00
Stock (Soft drinks) $240.00
Total Assets = $2300.00 Cee Drinks Shop owes Keenan Ltd for $800.00 the Ice Maker

Keenan Ltd is a Creditor of Cee Drinks shop
Conner introduced $1000.00 in cash and a Cooler worth $500, as the above definition states
these items are the Capital of the business, thus total capital is $1500.00.



$1000.00 + $500 = $1500.00

6. The Accounting Equation of Cee Drinks Shop

 Assets = Liabilities + Capital
$2300 = $800 +$1500
The equation can also be written as

 Asset – Liabilities = Capital
$2300 – $800 = $1500

 Liabilities = Assets – Capital
$800 = $2300 - $1500