Equity and liabilities

Overview

Current and non-current liabilities, trade payables, equity and the accounting equation, changes in capital, working capital with worked figures, and rising overdrafts.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is a liability?

   Model answer

   A liability is an amount the business owes to someone outside it. Loans, trade payables and overdrafts are examples.

2. 2

   What are current liabilities?

   Model answer

   Current liabilities are debts the business must pay within a year. Trade payables, a bank overdraft and loan repayments due this year are examples.

3. 3

   What are trade payables?

   Model answer

   Trade payables are amounts the business owes to suppliers for goods or services bought on credit. The older name is creditors.

4. 4

   What are non-current liabilities?

   Model answer

   Non-current liabilities are debts due for repayment after more than a year. A bank loan or commercial mortgage is an example.

5. 5

   How is a five-year bank loan split between current and non-current liabilities?

   Model answer

   Repayments due within the next year are shown as a current liability. The rest of the loan is shown as a non-current liability.

6. 6

   What is equity for a sole trader?

   Model answer

   Equity is the owner's investment in the business, also called capital. Equity equals the business's total assets minus its total liabilities.

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Six ways to work the same material.