Course Content
New Accounting Model (Exam-2009)
Books references: 1. Account Code (Volume III). 2. Chart of Accounts (Issued by CGA). 3. Manual Accounting Principles. 4. Accounting Policies and Procedures Manual.
Private: DAO Part-I Examination 2024 (Fresh Candidates) Past Papers
About Lesson

Accounting Equation: The accounting equation states that Assets = Liabilities + Shareholders’ Equity. It must always balance.

The names of financial statements related to assets, liabilities, and shareholders’ equity:

  1. Assets:

    • Definition: Assets are anything valuable that a company owns. They represent economic resources that provide future benefits.
    • Categories/Types:
      • Current Assets: Cash and assets that can be converted into cash within a year (e.g., inventory, accounts receivable).
      • Fixed Assets (Non-Current Assets): Long-term assets like land, buildings, machinery, and trademarks.
    • Formula: Total Assets = Current Assets + Fixed Assets.
    • Statement: Assets are listed on the balance sheet.
  2. Liabilities:

    • Definition: Liabilities are debts or obligations that a company owes to others. They represent claims against the company’s assets.
    • Categories/Types:
      • Current Liabilities: Debts due within the next 12 months (e.g., accounts payable, short-term loans).
      • Non-Current Liabilities: Long-term debts (e.g., long-term loans, bonds).
    • Formula: Total Liabilities = Current Liabilities + Non-Current Liabilities.
    • Statement: Liabilities are also listed on the balance sheet.
  3. Shareholders’ Equity:

    • Definition: Shareholders’ equity represents the residual interest in a company after deducting liabilities from assets. It’s the net worth of the business.
    • Formula: Shareholders’ Equity = Total Assets – Total Liabilities.
    • Statement: Shareholders’ equity is reported on the balance sheet as either “Owners’ Equity” (for sole proprietorships or partnerships) or “Shareholders’ Equity” (for corporations).

In summary:

  • Assets: What a company owns.
  • Liabilities: What a company owes.
  • Shareholders’ Equity: What’s left over for shareholders after deducting liabilities.

These concepts are fundamental for understanding a company’s financial health and are crucial for financial reporting.

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