2.1 Financial Position

Question 1

3 Steps to Determine Financial Position

Answer 1

1. List the things that you own that have a dollar value. You can usually feel or touch them. These are called assets
2. List the people and institutions you owe money to. These are called liabilities.
3. Calculate the difference between total assets and total liabilities. The difference is called the capital or owner’s equity.

Question 2

2. What is the equation upon which accounting is built

Answer 2

Assets = Liabilities + Owner’s Equity.

Question 3

3. What is another term that means the same thing as equity

Answer 3

Owner’s equity is also called the owner’s net worth - it is how much the business is worth to the owner.

Question 4

4. Give two forms of the fundamental accounting equation

Answer 4

1. Assets - Liabilities = Owners Equity
2. Assets = Liabilities + Owners Equity