06 Transaction Analysis

Question 1

Accounting equation

Answer 1

Assets = Liabilities + Equity

Question 2

Extended accounting equation

Answer 2

Assets + Expenses (Debits) = Liabilities + Equity + Income (Credits)

Question 3

Recording transactions onto a worksheet equation

Answer 3

Income - Expenses = Profit

Question 4

Assets

Answer 4

What the business owns (resources) (e.g. accounts receivable, inventory, equipment)

Question 5

Liabilities

Answer 5

What the business owes to organisations/individuals outside the business (e.g. creditors/accounts payable, loans)

Question 6

Equity

Answer 6

What the business owes to the owners (e.g. capital that owners pay in beginning, profit)

Question 7

Income

Answer 7

Generally sales of goods/services

Question 8

Expenses

Answer 8

Generally costs involved in making the income (e.g. inventory, wages, cogs)

Question 9

Closing equity equation

Answer 9

Closing equity = Opening equity + profit

Question 10

Other extended accounting equations

Answer 10

Assets = Liabilities + (Opening equity + profit)
Assets = Liabilities + (Opening equity + (Income - Expenses)

Question 11

Omitting a transaction for a cash sale of $10,000 from a worksheet will cause..

Answer 11

The assets and liabilities and equity sides of the worksheet will balance, i.e. they will have equal totals

Question 12

Total claims

Answer 12

What other people can claim; equity is part of total claims

Question 13

Business transactions

Answer 13

Exchanges of resources (or an interaction) between the business entity and another entity or individual.

Question 14

The business completes a purchase order for the purchase of more inventory at a cost of $1,500. The immediate effect on the accounting equation is to

Answer 14

No effect as this is not recognised as a business transaction until the inventory is received

Question 15

The effect of profit on the accounting equation is to..

Answer 15

Increase equity