Accounting Equation (Essay Sample)

Accounting Equation Student Name University Affiliation . According to Frank Wood (Business accounting 1, 2005), an asset means something owned by an individual or an entity that has a monetary value. (P2). The monetary value can be an asset's value at cost, the present market value or residual value. Cost value refers to amount of money one pays at purchase point. Market value is the value attached to a given asset as given by the market forces of demand and supply. Residual value is the projected value of an asset while considering its depreciation rate and the number of years its life span. Liabilities are financial obligation owed to other people. Owner's equity is individual members' contributions in the form of shares. The sum of all assets owned by an entity is equal to liabilities added together with the owner's equity that is: Assets= Liabilities + Owner's equity. This equation explains that what asset an individual owns must be either funded by himself or together with other people. Assets can be classified into non-current and current assets. Examples of non-current assets are Plant property and equipment, goodwill, investment property and land and buildings. Examples of current assets are inventory, trade receivables and cash and cash equivalents. Similarly, liabilities can be classified into non-current and current ones. Example of a non-current liability is debentures while a current liability is trade payables. For example, if I have a sum of $1000000, I can decide to pay $300000, $ 200000, $ 500000 for a house, truck and stock respectively. I will take a loan of $ 200000 from a bank; spend $50000 on Goodwill for the house I bought. The remaining will cater for any emergency which might arise. My non-current assets will be: house with a value of $300000, Truck with a value of $200000, Goodwill of $50000, Inventory of $500000 and cash at my bank account of $150...