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Accounting Equation Help

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Accounting Equation Help

  • This topic has 4 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • March 9, 2015 at 8:14 pm #231845
    Dan
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Hi – I feel super stupid. But I need a little bit more explanation.

    I was doing the question 1 in Chapter 2, and it asked how do you calculate the traders net profit. The answer was Closing Net Assets + Drawings – Capital Introduced – Opening Net Assets.

    Can someone help me understand this a bit more? I am happy with the equation for increase in net assets…Where we are minus’ drawings, but the in the above example we are adding back. I am sure its just manipulation of the equation… so I dont know why I am struggling.

    Any help would be appreciated.

    Cheers
    D

    March 10, 2015 at 5:44 am #231861
    Linkin
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Yes, you are right bro.

    The formula to calculate closing net assets is:
    Opening net asset + net profit + capital introduced – drawing = Closing net asset

    But when we have to find the net profit or any other item from the above equation we simply rearrange it.

    I hope you got the idea!

    March 10, 2015 at 10:33 am #231881
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Linkin: Please don’t answer questions in this forum – it is Ask the Tutor and you are not the tutor.

    Dan: The accounting equation is:
    Increase in net assets = cap introduced + profit – drawings
    So…

    Closing net assets – opening net assets = cap int + profit – drawings

    If you add drawings to both sides:

    Closing net assets – opening net assets + drawings = cap int + profit

    If you subtract cap int from both sides:

    Closing net assets – opening net assets + drawings – capital introduced = profit

    March 10, 2015 at 1:07 pm #231889
    Dan
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Thanks, I have got it. It was a late night last night, nothing was going in. Cheers

    March 10, 2015 at 2:06 pm #231896
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

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    Posts
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