How do prepaid expenses affect the Accounting Equation?

Prepaid expenses reduce cash but add to assets.

What is the impact of accrued income on the Accounting Equation?

Accrued income increases assets and capital.

Depreciation decreases asset value and capital.

Assets = Liabilities + Capital, Profit = Revenue - Expenses

The Accounting Equation is a fundamental concept in accounting, stating that total liabilities must equal total assets, forming the basis for understanding financial transactions and balances.
Special transactions in accounting, such as prepaid expenses, outstanding expenses, accrued income, and depreciation, have distinct impacts on the components of the Accounting Equation, highlighting the complexity and nuances involved in financial accounting practices.

What is the Accounting Equation?
Assets = Liabilities + Capital
How do prepaid expenses affect the Accounting Equation?
Prepaid expenses reduce cash but add to assets.
What is the impact of accrued income on the Accounting Equation?
Accrued income increases assets and capital.
How does depreciation affect the Accounting Equation?
Depreciation decreases asset value and capital.
What formulas are commonly used in accounting practice?
Assets = Liabilities + Capital, Profit = Revenue - Expenses

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The chapter being revised is about the Accounting Equation, crucial for exams.
The Accounting Equation states that total liabilities equal total assets.
Basic transactions include buying goods for cash, on credit, and selling goods.
Selling goods involves adjusting stock, cash, and profit/loss in the equation.
Special transactions like prepaid expenses, outstanding expenses, accrued income, and depreciation are essential.
Prepaid expenses reduce cash but add to assets, while outstanding expenses reduce capital.
Accrued income increases assets and capital, while unearned income adds to liabilities.
Depreciation decreases asset value and capital.
Practice questions involve applying formulas like assets = liabilities + capital and profit = revenue - expenses.
Questions may require calculating closing capital, assets, and liabilities using given data and formulas.

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