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# Accounting Equation

PROFIT AND LOSS ACCOUNT

The accounting equation is:

Our expenses are £3000

Try a few yourselves (like I said earlier the answers are below)

1  We have Income of £4000 and expenses of £2500 what is our profit?

2  We have expenses of £5000 and profit of £1000 what is our income?

3   We have Income of £9000 and profit of £3000 what are our expenses?

Ok, so let’s look at them:

1  We have Income of £4000 and expenses of £2500 what is our profit?

So we know Income         –       expenses     =      profit

£4000                   –        £2500                   =       £1500

Our profit is £1500

2  We have expenses of £5000 and profit of
£1000 what is our income?

So we know income         –       expenses     =      profit

£6000                   –        £5000                   =       £1000

Our income is £6000

3  We have Income of £9000 and profit of £3000 what are our expenses?

So we know income         –       expenses     =      profit

£9000                   –        £6000                   =       £3000

Our expenses are £6000

Balance sheet

The accounting equation is:

Let’s do 2 examples together to demonstrate this then I’ll give you a few more to do with the answers below.

Example
1 – We have Income of £10000 and expenses of £9000 what is our profit?

So we know income         –       expense      =      profit

£10000       –        £9000                   =       £1000

Our profit is £1000

Example
2 – We have Income of £13000 and profit of £10000 what are our expenses?

So we know Income         –       expenses     =      profit

£13000       –        £3000                   =       £10000
You will see this as we look through the balance sheets later on but is a fundamental of ensuring your balance sheet actually balances.

Let’s do 2 examples together to demonstrate this then I’ll give you a few more to do with the answers below.

Example
1 – We have assets of £10000 and liabilities of £7500 what is our capital?

So we know assets          –       liabilities      =      capital

£10000       –        £7500                   =       £2500

Our capital is £2500

Example
2 – We have Capital of £3000 and assets of £10000 what are our liabilities?

So we know assets          –       liabilities      =      capital

£10000       –        £7000                   =       £3000

Our Liabilities are £7000

Try a few yourselves (like I said earlier the answers are below

1     We have assets of £5000 and liabilities of £2000 what is our capital?

2      We have liabilities of £3000 and capital of £2000 what is our assets?

3    We have Assets of £10000 and capital of £1000 what are our liabilities?

Ok, so let’s look at them:

1    We have assets of £5000 and liabilities of £2000 what is our capital?

So we know assets          –       liabilities      =      capital

£5000                   –        £2000                   =       £3000

Our capital is £3000

2        We have liabilities of £3000 and capital of £2000 what is our assets?

So we know assets          –       liabilities      =      capital

£5000                   –        £3000                   =       £2000

Our assets are £5000

3  We have Assets of £10000 and capital of £1000 what are our liabilities?

So we know assets          –       liabilities      =      capital

£10000       –        £9000                   =       £1000

Our liabilities are £9000