A-Level Accounting - Fundamental Concepts & Terminology

Front

Define the Business Entity Concept.

Back

This concept states that the financial affairs of a business must be kept separate from the personal affairs of its owner. For accounting purposes, the business is treated as a distinct entity, regardless of whether it is a sole trader or a limited company.

Front

What is the Accounting Equation?

Back

The fundamental formula that forms the basis of double-entry bookkeeping: **Assets = Capital + Liabilities**. It demonstrates that a business's assets are funded by either the owner's capital or external borrowing.

Front

Define 'Assets' in accounting.

Back

Assets are resources owned or controlled by a business as a result of past events, from which future economic benefits are expected to flow to the entity. Examples include machinery, inventory, and cash.

Front

Define 'Liabilities'.

Back

Liabilities represent the present obligations of a business to transfer economic resources (usually money) to other entities in the future as a result of past transactions or events.

Front

What is 'Capital'?

Back

Capital refers to the owner's claim on the assets of the business. It represents the investment made by the owner, plus any retained profits, minus any drawings.