Accounting equation
In this lesson, you'll learn how to use the accounting equation to calculate profit when records are incomplete—a crucial technique for both limited companies and sole traders.
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In this lesson
- 0:00 The Accounting Equation Explained
- 0:50 Using the Equation to Calculate Profit
- 1:28 Worked Example: Beijing Limited
- 3:53 Accounting Equation for Sole Traders
- 4:45 Worked Example: Jonathan's Profit Calculation
About this lesson
The accounting equation (assets = equity + liabilities) can be rearranged to isolate retained earnings, which you then use with the retained earnings formula to find the missing profit figure. You'll work through practical examples showing how to plug known figures into the equation to solve for profit, and discover why distinguishing between current and non-current assets or liabilities doesn't affect the calculation. This method is essential for tackling incomplete records questions across ACCA Financial Accounting and CIMA Management Accounting papers, where you're given most balances but must derive the profit for the period.
Duration: 7m
Transcript
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