Accounting Equation

Question 1

Whats the foundation accounting is built on

Answer 1

The accounting equation

Question 2

Accounting equation

Answer 2

Assets - liabilities = equity

Question 3

What’s an asset

Answer 3

Something an org has acquired or purchased nd has monetary value, eg equipment, cash, stadium

Question 4

What’s a liability

Answer 4

An unsettled claim against the assets of an org, eg money owed to supplier, loan etc

Question 5

What’s equity

Answer 5

Equity is ownership interest in the org and represents funds invested by owners + retained earnings - any retained accumulated losses

Question 6

What does left side of accounting equation represent

Answer 6

What you have and owe at specific point in time

Question 7

What does right side of accounting equation represent

Answer 7

How you got to that point and how accounting value of business has decreased/ increased

Question 8

How are assets and liabilities typically valued

Answer 8

Usually depreciated historic cost approach

Question 9

Acccountign equation must _

Answer 9

Balance

Question 10

Show how accounting equation can be expanded

Answer 10

FA + CA - CL - LTL = I + EI

Question 11

What’s balance sheet

Answer 11

A statement showing financial position of an org on specified date

Question 12

What does I stand for in expanded accounting equation

Answer 12

Income

Question 13

Income statement formula

Answer 13

Revenue - expenses

Question 14

What’s income statement

Answer 14

Summary of orgs financial performance over specified period

Question 15

What does CA stand for

Answer 15

Cash/cash flow

Question 16

Cash formula

Answer 16

Cash at start + receipts - payments

Question 17

What’s cash flow statement

Answer 17

Summary of incomings and outgoings of cash over specified period

Question 18

What do statements provide

Answer 18

Summary of financial health of org and if it’s a going concern

Question 19

What’s a going concern

Answer 19

A currently operating busi that’s expected to continue to function as such and remain viable in foreseeable future

Question 20

Why do most businesses fail to be a going concern

Answer 20

Bcos they don’t have enough cash to pay bills in short term

Question 21

What’s most important asset of business

Answer 21

Cash

Question 22

3 characteristics of double entry bookkeeping

Answer 22

All equations must balance
Always 2 entries, equal and opposite
Follows basic rules of algebra

Question 23

What’s double entry bookkeeping

Answer 23

Method of recording transactions where for each busi transaction, an entry is recorded in at least 2 accounts as a debit or credit

Question 24

What’s cash accounting

Answer 24

An accounting method where income is recorded when cash is received, and expenses is recorded when cash is paid
It’s effectively the cash flow statement

Question 25

What’s cash accounting suitable for

Answer 25

Small simple businesses that provide and receive goods n services at point they’re paid for

Question 26

What’s accruals accounting

Answer 26

An accounting method where revenue is recognised when earned, and expenses is recognised when incurred in income statement

Question 27

Does cash increase/decrease exactly reflect income in accruals accounting

Answer 27

No

Question 28

Why can’t accounting equation be used to full extent in cash accounting

Answer 28

Cash accounting only reflects cash in accounting equatio

Question 29

What’s a trade debtor

Answer 29

A customer who hasn’t yet paid you for your goods or services

Question 30

Trade creditor

Answer 30

a supplier who has sent your business goods, or supplied it with services, who you haven't yet paid

Question 31

Net assets meaning

Answer 31

Total assets of busi - all its liabilities

Question 32

Total reserves meaning

Answer 32

portions of a company's profits that are set aside for specific or general purposes

Question 33

What’s financial accounting

Answer 33

- The preparation of financial reports, eg balance sheet and income statement primarily for external stakeholders (such as investors, lenders, suppliers and tax authorities)

Question 34

What’s management accounting

Answer 34

- The preparation of management reports that provide info to internal managers making day-to-day decisions

Question 35

What’s depreciation

Answer 35

The gradual conversion of the cost of a tangible fixed asset into an operational expense over the assets estimated useful life

Question 36

What’s profit loss statement

Answer 36

Shows orgs revenue and expenses over certain period

Question 37

Is under provision of demerit goods an outcome of market failure

Answer 37

No

Question 38

What’s marginal costing concerned with

Answer 38

Costs that change as a result of producing additional goods/services