Acca financial Accounting (FA) Study Text ac ca (FA)

 

 

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Chapter 18 

KAPLAN PUBLISHING

 

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3 

Using the accounting equation 

If a business entity has recorded very little information of its transactions it may 

only be possible to calculate net profit for the year. This can be done using the 

accounting equation as follows: 

Assets = equity + liabilities 

This can be expanded as follows: 

Total assets = share capital + retained earnings + other reserves + total 

liabilities 

We could expand this further to disclose each non-current/current asset and 

liability. However, that is not necessary as all this represents is the captions on 

the statement of financial position. The only figure worth expanding is retained 

earnings (RE):