Identify Whether It Is an Asset or Liability

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Step 1 Identify whether it is Asset/Liability Lets first Revises concept of Balance Sheet What is Balance Sheet It is a Statement Showing Financial Position of a Business It shows Liabilities Left Side Assets Right Side Example BALANCE SHEET LIABILITIES AMT ASSETS AMT Bank Loan Bank Amount Payable by Business to Others Properties of Business Are the following Assets or Liabiltiies? Asset or Liability Cash Asset Bank Asset FD (Fixed Deposit in Bank) Asset Bank Loan Liabilty Car Asset Car Loan Liabilty Stock Asset Building Asset Building Loan Liabilty BANK Overdraft Liabilty Debtors Asset (Amount to be Received from Customer for Sale of Goods) Creditors Liabilty (Amount to be paid to Supplier for Purchasing Goods) Are the following Assets or Liabiltiies? Loan from Father Own Money invested to Start Business to Start Business (Unsecured Loan) (Capital) It is a Liability It is also a Liability It is a loan taken by Business from Third Party It is a loan taken by Business from Owner Loan Loan Father Business Owner Business This is Called External This is called Internal Liability Liability Difference between External and Internal Liability External Liability Internal Liability it is the liability it is the liability towards towards Outside Parties Owners Example Example Loan taken from Bank Capital invested by Owners Loan taken from Relatives Who is owner bank Overdraft Proprietorship Proprietor Partnership Partners Company Shareholders What are Drawings? If any money or other assets withdrawn by Owner from Business it is Drawings Difference between Capital & Drawings Capital Drawings Owner Contributes Money Owner Withdraws Money into Business into Business Money Money Owner Business Owner Business Note Instead of Money,Other Asset Instead of Money,Other Asset may be contributed by Owner may be Withdrawn by Owner Asset Asset Owner Business Owner Business Where is Drawings Shown in Balance Sheet It is Reduced from Capital Example Capital 500000 Drawings -100000 Net 400000 Net Amount is shown as Capital under Liability Example Suppose a Person Started a New Business Own Cash Invested in business 100000 Capital 100000 Building of Owner Introduced 400000 Capital 400000 in Business Profit Earned 200000 Profit 200000 Cash Withdrawn from 300000 Drawings -300000 Business for personal use Stock of Business used for 20000 Drawings -20000 Personal Use What is Closing Capital Closing Capital 380000