Accounting Business Reporting for Decision Making

CHAPTER 4 Business transactions 139

Using the accounting equation to solve for missing figures

The accounting equation can also help us solve for missing figures. Remember that the assets side must

equal the claims side in all situations. Here are some examples using the accounting equation to solve

for missing figures.

1. A business has assets of $200 000 and liabilities of $40 000, but we do not know the amount of equity.

Let us use the accounting equation to determine the missing item:

A = L + E

$200 000 = $40 000 +?

E = $160 000

2. A business has liabilities of $104 000 and equity of $182 000. What are the total assets?

A = L + E

A = $104 000 + $182 000

A = $286 000

3. The equation can be used when we know the current assets but not the non-current assets. The busi-

ness has current assets of $34 000, current liabilities of $8000, non-current liabilities of $80 000 and

equity of $160 000. What is the amount of non-current assets?

A = L + E

$34 000 +? = $8 000 + $80 000 + $160 000

$34 000 +? = $248 000

? = $214 000

Therefore, the non-current assets are $214 000.

4. We can also use this equation to find missing figures for either income or expenses. The business has

capital of $200 000, liabilities of $160 000, income of $180 000 and total assets of $500 000. What

were the expenses for the period?

A = L + E

$500 000 = $160 000 + $200 000 + $180 000 +?

? = −$40 000

Therefore, the expenses for the period are $40 000. Recall that expenses reduce profit and therefore

reduce equity.