JAIIB AFM Module-B Unit 1 : Balance Sheet Equation

25/08/2023

JAIIB Paper 3 AFM Module B Unit 1 : Bank Audit & Inspection (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 3 (Accounting and Financial Management for Bankers) includes an important topic called “Balance Sheet Equation”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 3 (AFM) Module B (FINANCIAL STATEMENTS AND CORE BANKING SYSTEMS ) Unit 1 : Balance Sheet Equation Aspirants must go through this article to better understand the topic, Balance Sheet Equation and practice using our Online Mock Test Series to strengthen their knowledge of Balance Sheet Equation. Unit 1 : Balance Sheet Equation

Balance Sheet Equation

An Accounting Equation is also called the Balance Sheet Equation. We all know that we record all the business transactions using the Dual Aspect concept. This means that each debit has an equal credit and vice-versa.

Capital: It means the amount which the owner of business has invested in the firm and can claim from the firm.
Liability: It means the amount which the firm owes to outsiders. Long term liabilities are those liabilities which are payable after a long term. Current liabilities are those liabilities which are payable in near future (generally within one year).
Asset: Assets are things of value owned. Fixed assets are those assets which are purchased for the purpose of operating the business but not for resale, e.g. Land, building, Plant and Machinery, etc. Current assets are those assets which are kept for short term for converting into cash or for resale, e.g, unsold goods, debtors, cash, bank balance, etc.

Assets = Liabilities + Capital (Owner’s Equity)

Liabilities = Assets- Capital or Capital = Assets – Liabilities

Example:

ABC starts the food truck. He puts ₹ 50,000 as a capital fund. He further loans ₹ 25,000 from a local credit vendor. Now, he has a total of ₹ 75,000, he then purchases a fully furnished truck for ₹ 45,000.

Below is the ABC balance sheet for December 2017.

Computation Of Balance Sheet Equation

If there is any change in the amount of the assets or the liabilities, the owners’ claim or the capital is bound to change correspondingly. If assets increase and liabilities do not, the capital will increase; a reduction in the amount of assets or an increase in the amount of liabilities will mean a reduction in the amount of capital. Such balance sheet equations will be clearer by the various transactions given below: