1b. The Elements Of Accounting

Question 1

1. What are the three elements of accounting?
2. What is the accounting equation?
3. What is the rule for this equation?

Answer 1

1. assets, liabilities, owner’s equity
2. The accounting equation:

ASSETS = LIABILITIES + OWNER’S EQUITY

3. This equation must always balance

Question 3

ASSETS:

1. What are assets?
2. Examples?

Answer 3

ASSETS

1. = items with money value that are owned by a business
2. Eg.
   - cash
   - accounts receivable (selling goods or services on credit)
   - equipment (office, store, delivery etc)
   - supplies (office, store, delivery etc)

Question 4

LIABILITIES

1. What are liabilities?
2. What are two examples of liabilities and what are they?

Answer 4

LIABILITIES
1. = debts owned by the business
2.
ACCOUNTS PAYABLE - paying cash is often not possible or convenient, so businesses purchase goods and services on credit. The name of the account used is accounts payable.
NOTES PAYABLE - this is another type of liability. It is a formal written promise to pay a specific amount of money at a definite future date.

Question 5

OWNER’S EQUITY

1. What is owner’s equity?
2. What are other names for owner’s equity?

Answer 5

OWNER’S EQUITY

1. = the difference between assets and liabilities
2. Aka:
   - capital
   - proprietorship
   - net worth