Financial Literacy Club
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Understanding Businesses · Lesson 4
Assets, Liabilities, and Equity
Part A. Vocabulary
Write the letter of the matching definition on each line.
- 1. Assets
- 2. Liabilities
- 3. Equity
- A. What the business owes others: loans, unpaid bills to suppliers (accounts payable), and wages owed.
- B. What's left for the owners after subtracting liabilities from assets. It includes money owners put in plus profits kept in the business.
- C. Things the business owns that have value: cash, inventory, equipment, buildings, and money customers owe it (accounts receivable).
Part B. Guided notes
Fill in each blank using the word bank.
Word bank: assets · business's · Equity · Liabilities
- Assets = what you own. = what you owe.
- Equity = − liabilities.
- Assets = Liabilities + , always.
- Equity is a net worth.
Part C. Check your understanding
Circle the best answer.
A business has $800,000 in assets and $500,000 in liabilities.
1. What is its equity?
- A. $1,300,000
- B. $800,000
- C. $500,000
- D. $300,000
2. Which of these is a liability?
- A. Inventory on the shelves
- B. An unpaid bill owed to a supplier
- C. Cash in the bank
- D. Money customers owe the business
3. If a company buys equipment with a loan, its equity immediately goes up.
True/False
Part D. Apply it
Show your work.
1. A business has $80,000 in assets and $30,000 in liabilities. What's its equity?
2. A bakery buys a $5,000 oven with a loan. What happens to assets, liabilities, and equity?
Part E. Think about it
Answer in complete sentences.
1. What are your own assets and liabilities? What's your net worth?
2. Why might a company choose to borrow money instead of using owners' money?
Exit ticket
Name
Write the accounting equation and explain it in your own words.