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For the purpose of the accounting equation approach, all the accounts are classified into the following five types: assets, capital, liabilities, revenues/incomes, or expenses/losses. If there is an increase or decrease in a set of accounts, there will be equal decrease or increase in another set of accounts.
Buying assets by borrowing money (taking a loan from a bank or simply buying on credit) 3 − 900 − 900 Selling assets for cash to pay off liabilities: both assets and liabilities are reduced 4 + 1,000 + 400 + 600 Buying assets by paying cash by shareholder's money (600) and by borrowing money (400) 5 + 700 + 700 Earning revenues 6 − 200 ...
In the accounting equation, Assets = Liabilities + Equity, so, if an asset account increases (a debit (left)), then either another asset account must decrease (a credit (right)), or a liability or equity account must increase (a credit (right)). In the extended equation, revenues increase equity and expenses, costs & dividends decrease equity ...
Your net worth is more than just the balance in your bank account. It's a measure of your financial health. To get the answer to "What is my net worth?" subtract your total liabilities from your ...
Formally, the duration gap is the difference between the duration - i.e. the average maturity - of assets and liabilities held by a financial entity. [3] A related approach is to see the "duration gap" as the difference in the price sensitivity of interest-yielding assets and the price sensitivity of liabilities (of the organization) to a change in market interest rates (yields).
The accounting equation relates assets, liabilities, and owner's equity: Assets = Liabilities + Owner's Equity. The accounting equation is the mathematical structure of the balance sheet. Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board (IASB). The following is a ...
The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. [4] Another way to look at the balance sheet equation is that total assets equals liabilities plus owner's equity.
The asset matures in three years while the liability matures in ten. In three years, the firm will have to reinvest the proceeds from the asset. If interest rates decrease, it could end up reinvesting at 3%. For the remaining seven years, it would earn 3% on the new asset while continuing to pay 3.5% on the original liability.