Net Worth of a Business | Business Studies Form 3

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Net Worth of a Business - Business Studies Form 3

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NET WORTH OF A BUSINESS

Businesses are involved in selling goods and services in order to make profit. After trading for sometime,the owner of a business determines the basic monetary value of the business resources.This helps the owner to assess whether the business is expanding or not.

Assets

Assets are properties owned by the business such as building, furniture, motor vehicles,equipment,machines,stock,debtors,cash in hand and cash at bank.

Classification of assets;

There are two types of assets;

(i) Fixed assets

(ii) Current assets.

The following diagram gives examples of assets.

Click on the buttons to view types and examples of asets.

Examples of assets

Examples of fixed assets

Examples of current assets

Liabilities

This refers to the debts that a business owes outsiders, that is, other businesses or individuals. There are two types of liabilities;

(i) Long term liabilities

(ii) Short term liabilities.

The following diagram illustrates the examples of liabilities.Click on the appropriate plate and examples of liabilities will appear.

Book keeping equation

Book keeping is the process of recording business transactions in the books of a business.The book keeping equation is derived from the fact that all the resources of a business (assets) should be equal to the total sum of the funds or money contributed by the owner [capital] and the amount borrowed [liabilities].

ASSETS=CAPITAL +LIABILITIES.

A= C + L





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