September 2024
Teresa Clarke offers some advice on how to ace questions on the accounting equation.
The accounting equation is usually shown like this:
Assets – liabilities = capital
However, in exam questions they may ask you to identify whether a re-arranged equation is correct. This can be tricky. Let’s look at a much simpler way of answering this type of question.
We can code the equation!
Assets = £1,000
Liabilities = £600
Therefore, assets of £1,000 – liabilities of £600 = Capital of £400
£1,000 – £600 = £400
Now let’s apply the code to the following re-arranged equations to check whether they are correct or not.
Assets – capital = liabilities
Assets of £1,000 – capital of £400 = Liabilities of £600 – YES!
Capital – liabilities = assets
Capital of £400 – liabilities of £600 = assets of £1,000 – NO!
Liabilities + capital = assets
Liabilities of £600 + capital of £400 = assets of £1,000 – YES!
Liabilities – assets = capital
Liabilities of £600 – assets of £1,000 = capital of £400 – NO!
Try this coding method with questions from study materials. I guarantee it will make it simpler to answer them.
If you like my way of explaining things, you might like my workbooks, which are all available from Amazon in both paperback and as eBooks. The links to all my workbooks can be found at https://www.teresaclarke.co.uk/
- Teresa Clarke is a freelance AAT Tutor
