In a group discuss the different sources from which a business could borrow money and write them in the box below.

Do you have any liabilities? If so what are they?

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Current Liabilities Current liabilities are liabilities which are paid back within a period of one year. Long Term Liabilities Long term liabilities are liabilities which are paid back in a period longer than one year.

Match the following liabilities with their definitions and the say whether they are current liabilities (CL) or long term liabilities (LTL)

Liability			Definition
1	mortgage		a	Money borrowed from the bank
2	taxes payable		b	Money to be paid in the accounting period
3	bonds		c	Property given as Security until debt is paid
4	bank loan		d	A documentary promise to repay money
5	accounts payable		e	Taxes to be paid in the accounting period

The Accounting Equation

The Accounting Equation Assets = Liabilities + Proprietorship Uses of funds = Sources of funds. The accounting equation is the relationship between the total assets, the Liabilities and the proprietorship of a business at a certain date

As stated earlier, when a company is new it is like an empty box. When money comes in from various sources, it is used in various ways. It may be kept in the bank or it may be used to buy land, buildings or raw materials or it may be used to pay wages and salaries. There must, however, always be a balance. The various uses to which the money is put will be equal to the amount of money which has come into the business

The accounting equation can be written in other ways

Proprietorship = Assets • Liabilities

Liabilities = Assets - Proprietorship

Company

Review Questions 2

a) What is a company? ________________________________

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3. What does "separate legal entity" mean?_______________________________________

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c) What does "proprietorship" mean? ______________________________________________________________________________________________________________________________________________________________

d) What is another name for "proprietorship"?________________________________________________________________________________________________________________________________________________

5. What is an asset? ________________________________________________________

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6. Write down what your 3 main assets are

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7. What is a liability? ________________________________________________________

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8. Divide the following into assets and liabilities

Land, bank loan, furniture, accounts payable, inventories, cash at bank, bonds,

accounts receivable, vehicles, income tax payable, premises, equipment

Assets	Liabilities

9. Complete the tables below:

Assets

Class: Members(types): Examples:

Class: Members(types): Examples:

Liabilities

j) What is the difference between current assets and fixed assets? ______________________________________________________________________________________________________________________________________________________________

k) What is the difference between current liabilities and long term liabilities? ______________________________________________________________________________________________________________________________________________________________

1) What is the accounting equation? ______________________________________________________________________________________________________________________________________________________________

m) Why is the accounting equation always in balance? _______________________________________________________________________________

n) If a company's assets are $140,017 and its liabilities total $74,215, what is the owners' equity? Explain how you arrived at this answer? ________________________________________________________________________________________________________________