Practice question · Sort into groups
Asset, liability, or equity? Sort each item.
Groups: Asset · Liability · Equity
- Retained profits left inside the firm
- An unpaid supplier invoice
- Cash in the bank account
- Amounts customers still owe us
Hints
- Ask whether the item is a right to collect or an obligation to pay.
- Profits kept inside the business belong to the owners.
Show the answer
Asset: Cash in the bank account, Amounts customers still owe us
Liability: An unpaid supplier invoice
Equity: Retained profits left inside the firm
Why
Receivables are assets (a right to collect); payables are liabilities (an obligation to pay). Retained profits are equity, the owners chose to leave their money inside.
Practise The Accounting Equation
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