ZIMSEC O Level · Principles of Accounts · Form 3
Accounting is recording, classifying and summarising financial information so that owners, managers, banks and ZIMRA can make decisions.
Key terms
- Assets: what the business owns (premises, equipment, inventory, trade receivables, cash).
- Liabilities: what the business owes (trade payables, bank loans).
- Capital: what the business owes the owner (the owner's investment).
- Drawings: what the owner takes out for personal use.
The accounting equation
Assets = Capital + Liabilities. Every transaction keeps the equation balanced.
Worked example: Rudo starts a business with US$5 000 cash, then buys equipment for US$2 000 on credit. Show the equation.
Start: Cash 5 000 = Capital 5 000
After: Cash 5 000 + Equipment 2 000 = Capital 5 000 + Payable 2 000 → 7 000 = 7 000
The statement of financial position
Lists assets, capital and liabilities at a date. Non-current assets (used for years) and current assets (change quickly), non-current liabilities (over a year) and current liabilities (within a year).
Check yourself
- Capital is US$12 000 and liabilities are US$3 000. Find total assets.
- Classify: motor vehicle, bank overdraft, inventory.
- How does buying goods for cash affect the equation?
Show answers
- US$15 000
- Non-current asset; current liability; current asset.
- One asset (inventory) rises and another (cash) falls by the same amount; totals are unchanged.
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