Chapter 1 - definitions

Question 1

Income

Answer 1

An increase in assets or a decrease in liabilities which results in an increase in equity.

Question 2

Expenses

Answer 2

A decrease in assets or an increase in liabilities which results in a decrease in equity.

Question 3

Asset

Answer 3

A present economic resource controlled by the entity as a result from past events. It has the right to produce potential future economic benefits such as revenue.

Question 4

Liability

Answer 4

A present economic obligation, to transfer an economic resource as a result of past events. An obligation is a duty which the entity has no practical ability to avoid.

Question 5

Equity

Answer 5

The residual interest of an entity’s assets minus it’s liabilities. This includes funds introduced from shareholders such as share capital.

Question 6

Profit

Answer 6

Increases in equity, not resulting from funds introduced from shareholders.

Question 7

Loss

Answer 7

Decreases in equity, not resulting from funds introduced from shareholders.