Bookkeeping 04. Chapter 2

Question 1

The most basic principle of bookkeeping is:

Answer 1

WHAT IS OWNED MUST ALWAYS BALANCE WHAT IS OWED.

This can be expressed as THE BALANCE SHEET EQUATION.

Question 2

Explain THE BALANCE SHEET EQUATION:

Answer 2

ASSETS = EQUITIES
ASSETS=LIABILITIES + CAPITAL
ASSETS=CREDITOR’S EQUITY+OWNER’S EQUITY

Question 3

The FUNDAMENTAL ACCOUNTING EQUATION is often abbreviated as:

Answer 3

A=L+C, and it means that ASSETS MUST EQUAL LIABILITIES.

Question 4

EQUITIES is:

Answer 4

LIABILITIES (the creditor’s equity) plus CAPITAL, the owner’s equity in their business.

Question 5

CAPITALISM takes its name from the fact that:

Answer 5

the equity in US business enterprises belongs to private individuals.

Question 6

To show how much you own of an auto that cost 15K and you owe 10K, you would:

Answer 6

take the ASSET VALUE (15K) and subtract the LIABILITY of 10K (Creditor’s Equity) to arrive at the CAPITAL, or OWNER’S EQUITY, of 5K.

Question 7

The BALANCE SHEET would show this auto as:

Answer 7

15K=10K+5K
Asset=Liability+Capital
A=L+C

Question 8

When all the ASSETS and LIABILITIES have been totaled, they are SUMMARIZED on:

Answer 8

a statement called THE BALANCE SHEET.