I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

FORMULA TO LEARN 

The accounting equation is: 

    ASSETS 

= 

CAPITAL 

+ 

LIABILITIES 

 

For Liza Doolittle, as at 1 July 20X6: 

Assets 

= Capital 

+ Liabilities 

$2,500 (cash) 

= $2,500 

+ $0 

3.2 Example continued 

Liza Doolittle purchases a market stall from Len Turnip, who is retiring from his fruit and vegetables 

business. The cost of the stall is $1,800. 

She also purchases some flowers and potted plants from a trader in the wholesale market, at a cost 

of $650. This leaves $50 in cash, after paying for the stall and goods for resale, out of the original 

$2,500.  

The assets and liabilities of the business have now altered and, at 3 July before trading begins, the state 

of her business is as follows. 

Assets 

=  Capital 

+  Liabilities 

 

$      

 

 

 

 

Stall  

1,800 

= 

$2,500 

+ 

$0 

Flower and plants 

    650 

 

 

 

 

Cash 

     50 

 

 

 

 

 

 

2,500 

 

 

 

 

The stall and the flowers and plants are physical items, but they must be given a monetary value. This 

monetary value is usually what they cost the business (called historical cost in accounting terms). 

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