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Chapter (1) Elementary Accounting Equation: Lcci Level I & Ii

The document discusses key accounting concepts including the accounting equation, assets, liabilities, and capital. It provides examples of different types of assets like non-current assets (fixed assets) such as land, buildings, and machinery, and current assets like inventory, accounts receivable, cash, and prepaid expenses. It also gives examples of liabilities including non-current liabilities due beyond one year and current liabilities due within one year. Capital is defined as the owner's equity in the assets and adjustments to capital are discussed. Sample problems are provided to classify items as assets or liabilities and calculate capital for new businesses.

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James Milzer
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769 views4 pages

Chapter (1) Elementary Accounting Equation: Lcci Level I & Ii

The document discusses key accounting concepts including the accounting equation, assets, liabilities, and capital. It provides examples of different types of assets like non-current assets (fixed assets) such as land, buildings, and machinery, and current assets like inventory, accounts receivable, cash, and prepaid expenses. It also gives examples of liabilities including non-current liabilities due beyond one year and current liabilities due within one year. Capital is defined as the owner's equity in the assets and adjustments to capital are discussed. Sample problems are provided to classify items as assets or liabilities and calculate capital for new businesses.

Uploaded by

James Milzer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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LCCI Level I & II

CHAPTER (1)
ELEMENTARY ACCOUNTING EQUATION

THE ACCOUNTING EQUATION


ASSETS = CAPITAL + LIABILITIES

If there is no liability
ASSETS = CAPITAL

ASSETS
The properties owned by a business and used in the operation of that business is called assets.
{Properties owned by the company}

1. NON-CURRENT ASSETS (FIXED ASSETS)


Non-current Assets are those of the permanent or fixed nature that will not be sold or converted
into cash so long as they serve the need of the business.

Examples of Non-Current Assets are:


(a) Freehold Premises
(b ) Leasehold Premises
(c) Land
(d) Plant
(e) Building
(f) Machinery
(g) Furniture
(h) Fixture & Fittings
(i) Office equipment
(j) Delivery van

2. CURRENT ASSETS
Current Assets are those in the form of cash or those that may be expected to be converted into
cash in the near future by the regular operations of the business.
Examples of Current Assets are:
(1) Inventory
(2) Trade Receivables (Debtors)
pg. 1 Capital Vocational Training School
LCCI Level I & II

(3) Cash at Bank (Bank)


(4) Bill receivable
(5) Cash in hand (Cash)
(6) Other Receivables (Prepaid)
(7) Prepaid Expense
(8) Accrued Income

LIABILITIES
The right of the creditors in the assets of a business is called the liabilities of the business.
(Amounts owned by the company to external parties.)

(1) NON-CURRENT LIABILITIES


Non-current liabilities are those that will be due over 12 months (one year).

Examples of non-current liabilities are;


(a) Loan Note (Debenture Loan)
(b) Mortgage Loan
(c) Long-term Loan
(d) Bank Loan
(e) Loan from Someone

(2) CURRENT LIABILITIES


Current Liabilities are those that will be due within 12months (one year)and have to be paid
within the coming year.

Examples of Current Liabilities are;

(1) Trade Payables (Creditors)


(2) Bank Overdraft
(3) Other Payables (Accrued)
(4) Prepaid Income
(5) Accrued Expense

pg. 2 Capital Vocational Training School


LCCI Level I & II

CAPITAL
The right or interest of the proprietor, that is, ownship in the assets of the business is called net
worth, capital or equity. (Amounts owned by the company to the owner)
Adjustment for Capital;
£
Capital xxxx
Add: Profit xxxx
Less: Loss (x x x x)
Less; Drawing (x x x x)

1. Classify the following items into liabilities and assets;-

(a)Office machinery (d)Motor Vehicles


(b)Loan from C.Shirley (e)We owe for goods
(c)Fixtures and fittings (f)Bank balance (Cash at Bank)

2.Classify the following items into liabilities and assets

(a) Motor vehicle (b) Premises


(c) Creditors for goods (d) Stock of goods
(e) Debtor (f) Owing to bank (Bank Overdraft)
(g) Cash in hand (h) Loan from D.Jones
(i) Machinery (j) Mortgage Loan

3.Classify the following items into liabilities and assets

(a) Printing Machine (b) Merchandise


(c) Land (d) Loan from C.Smith
(e) Bank Overdraft (f) Goods
(g) Delivery Van (h) Debenture Loan
(i) Computer Machine (j) Furniture

pg. 3 Capital Vocational Training School


LCCI Level I & II

4. A Smart Set up a new business. Before he actually sells anything, he has bought motor vehicles
£2000, premises £5000, stock of goods £1000. He did not pay in full for his stock of goods and still
owes £400 in respect of them. He had borrowed £3000 from D.Bevan. After the events just described,
and before trading starts, he has £100 cash in hand and £700 cash at bank. You are required to calculate
the amount of his capital.

5. T. Charles strarts a business, Before he actually starts to sell anything, he has bought fixtures £2000,
motor vehicles £5000 and a stock of goods £3500. Although he has paid in full for the fixtures and
the motor vehicle, he still owes £1400 for some of the goods. J.Preston had lent him £3000. Charle,
after the above, has £2800 in the business bank account and £100 cash in hand. You are required to
calculate the amount of his capital.

pg. 4 Capital Vocational Training School

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