The accounting equation
Assets = Equity + Liabilities
Assets — things which are owned by the business or organisation.
| Non-current assets | Current assets |
|---|---|
| To be used in the business for more than 1 year. | To be used in the operation of the business within 1 year. |
| Examples: premises, furniture, fixtures, fittings, vehicles, machinery, goodwill. | Examples: cash in bank, cash in hand, closing inventory, trade receivables, prepaid expenses, accrued income. |
Liabilities — things which are owed to a third party outside of the organisation.
| Non-current liabilities | Current liabilities |
|---|---|
| To be paid in more than 1 year. | To be fully paid within 1 year. |
| Examples: bank loan, mortgage loan, debentures, redeemable preference shares. | Examples: trade payables, bank overdraft, prepaid income, accrued expenses. |
Owner's equity
Owner's equity (capital) — the owner's personal assets brought into the business to be used for business operations. Examples: the owner's vehicles, equipment and cash.