Accounting Elements

Question 1

Assets

Answer 1

A present economic resource controlled by the entity (as a result of past events) that has the potential to produce future economic benefits.

e.g inventory , vehicles

Question 2

Liabilities

Answer 2

A present obligation of the entity (as a result of past events) to transfer an economic resource.

e.g loans

Question 3

Owner’s Equity

Answer 3

The residual interest in the assets of the entity after liabilities are deducted.

Question 4

Revenues

Answer 4

Increases in assets or decreases in liabilities that lead to an increase in owners equity (other than contributions by the owner)

e.g sales made by a trading business or fees charged by a service business

Question 5

Expenses

Answer 5

Decreases in assets or increases in
liabilities that result in a decrease in owner’s equity, other than distributions to the owner.

e.g advertising, rent

Question 6

What is the accounting equation?

Answer 6

Assets = Liabilities + Owner’s Equity

Or

Owner’s Equity = Assets - Liabilities