Assets, Liabilities, and Equity — slides
Financial Literacy Club
Understanding Businesses · Lesson 4
Assets, Liabilities, and Equity
What a business owns, what it owes, and what's left for the owners.
12-minute lesson · learnwithflc.org
Assets, Liabilities, and Equity · 1 / 19
Financial Literacy Club
Understanding Businesses · Lesson 4
Assets, Liabilities, and Equity
What a business owns, what it owes, and what's left for the owners.
12-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Define assets, liabilities, and equity
- Use the equation Assets = Liabilities + Equity
- Show how a single transaction affects both sides of the equation
Warm-up
List three things you own and one thing you might owe someday. What would be left if you sold everything and paid every debt?
Think, then write your answer.
The big idea
Assets, Liabilities, and Equity
What a business owns, what it owes, and what's left for the owners.
Vocabulary
Assets
Things the business owns that have value: cash, inventory, equipment, buildings, and money customers owe it (accounts receivable).
Vocabulary
Liabilities
What the business owes others: loans, unpaid bills to suppliers (accounts payable), and wages owed.
Vocabulary
Equity
What's left for the owners after subtracting liabilities from assets. It includes money owners put in plus profits kept in the business.
Understanding Businesses · Lesson 4
These three are always connected by the accounting equation: Assets = Liabilities + Equity. Everything a business owns was paid for either with borrowed money or with the owners' money.
Understanding Businesses · Lesson 4
You already know this idea from personal finance. Your net worth is what you own minus what you owe. A business's equity is its net worth.
See it
A hypothetical lemonade stand has $150 in cash, $50 in supplies, and $300 in equipment: $500 of assets. It owes $200 on a loan from a parent. Equity is $500 minus $200, or $300.
- Cash
- $150
- Lemons, sugar, cups
- $50
- Stand, cooler, and pitchers
- $300
- Total assets
- $500
- Loan from a parent
- $200
- Total liabilities
- $200
- Equity (assets − liabilities)$500 = $200 + $300
- $300
Real example
One purchase, both sides
The lemonade stand borrows $100 more to buy a second cooler. What changes?
- Assets go up $100 (the cooler).
- Liabilities go up $100 (the loan).
- Equity stays the same: $600 = $300 + $300.
Every transaction keeps the equation balanced. That's why it's called a balance sheet — the topic of the next lesson.
Activity · pairs · 10 min
Keep It Balanced
- A lemonade stand starts. Step 1: the owner puts in $100 of her own cash. Step 2: she borrows $50 from a parent. Step 3: she spends $40 of cash on supplies.
- After each step, pairs record cash, supplies, liabilities, and equity in a T-chart.
- Pairs check that Assets = Liabilities + Equity after every step.
Check for understanding · 1 of 3
A business has $800,000 in assets and $500,000 in liabilities.
What is its equity?
- A$1,300,000
- B$800,000
- C$500,000
- D$300,000
D. $300,000
Equity = assets − liabilities = $800,000 − $500,000 = $300,000.
Check for understanding · 2 of 3
Which of these is a liability?
- AInventory on the shelves
- BAn unpaid bill owed to a supplier
- CCash in the bank
- DMoney customers owe the business
B. An unpaid bill owed to a supplier
Money the business owes is a liability. Money owed to the business is an asset.
Check for understanding · 3 of 3
If a company buys equipment with a loan, its equity immediately goes up.
- True
- False
False
Assets and liabilities both rise by the same amount, so equity doesn't change.
Remember
Key takeaways
- Assets = what you own. Liabilities = what you owe.
- Equity = assets − liabilities.
- Assets = Liabilities + Equity, always.
- Equity is a business's net worth.
Discuss
Talk it over
- What are your own assets and liabilities? What's your net worth?
- Why might a company choose to borrow money instead of using owners' money?
Exit ticket
Write the accounting equation and explain it in your own words.
Answer on your exit ticket before you leave.
Nice work today.
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