4.2 Effects of Business Transactions

• Assets, liabilities and capital
• The accounting equation
• The statement of financial position
• The effects of transactions on the statement of financial position
• Determining the net worth of a business

• analyse the effects of business transactions on the statement of financial position
• prepare a statement of financial position after adjustments to determine the net worth of a business
• recognise the effects of transactions when determining the net worth of a business

“How do transactions affect the statement of financial position of a business?”

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1. Assets, liabilities, capital and the accounting equation
   40 min · 1 practice tasks · quiz
   The three building blocks of a business's finances - assets, liabilities and capital - and the equation that connects them and always balances.
2. Preparing the statement of financial position
   40 min · 1 practice tasks · quiz
   Setting out a business's assets, capital and liabilities in a statement of financial position, adjusting it for transactions, and reading off the net worth.
3. Classifying assets
   40 min · 1 practice tasks · quiz
   Fixed assets stay and work; current assets change form within a year - a kiosk must sort them before it can total the equation.
4. Classifying liabilities and capital
   40 min · 1 practice tasks · quiz
   Liabilities are outsiders' money; capital is the owner's stake - net worth is assets minus what is owed.
5. The double effect of every transaction
   40 min · 1 practice tasks · quiz
   Grade 10 double entry: every deal changes at least two items so Assets = Capital + Liabilities still holds.
6. Swapping one asset for another
   40 min · 1 practice tasks · quiz
   Paying cash for a fridge, stock or tools swaps assets: totals and net worth stay the same.
7. Transactions that raise both sides
   40 min · 1 practice tasks · quiz
   Credit purchases and loans raise an asset and a liability together; the equation grows but net worth does not.
8. Transactions that lower both sides
   40 min · 1 practice tasks · quiz
   Paying a creditor or repaying a loan lowers an asset and a liability together; net worth still does not move.
9. Drawings and capital introduced
   40 min · 1 practice tasks · quiz
   When the owner puts money in or takes it out, capital and an asset move together - net worth changes.
10. Profit, loss and net worth
    40 min · 1 practice tasks · quiz
    Trading profit raises the owner's capital; a loss lowers it - the other way net worth moves besides drawings and extra capital.
11. Tracing a day's transactions
    40 min · 1 practice tasks · quiz
    A sequence of kiosk deals, each with a double effect, so the equation is still standing at closing.
12. Preparing the statement after adjustments
    40 min · 1 practice tasks · quiz
    Lay out a statement of financial position, apply a short list of deals, and read the new net worth.