Chapter 2

Question 1

What the business owes the owner. It can refer to funds raised by the business to fund a business idea

Answer 1

Owner’s equity

Question 2

Resources of monetary value that a business owns or are owed to the business. Examples are cash, motor vehicles, trade receivables and property

Answer 2

Assets

Question 3

Amounts that the business owes people for resources supplied to the business. Examples are trade payables, overdraft and loans

Answer 3

Liabilities

Question 4

A formula used to illustrate the relationship between the assets, liabilities and owner’s equity of a business. Shows that all the assets of a business are provided or funded either by the owner or the trade payables or other creditors of the business

Answer 4

Accounting equation

Question 5

A statement listing the assets, liabilities and owner’s equity (or capital) at a specific point of time. One of the financial statements prepared at the end of the financial years. Records the assets, liabilities and capital of the business

Answer 5

Statement of financial position

Question 6

Goods that a business purchases for resale

Answer 6

Inventory

Question 7

Value of assets in the form of cash or inventory withdrawn from a business by the owners for personal use. Reduce the owner’s equity

Answer 7

Drawings

Question 8

Assets that can be sold, used up or consumed through the normal workings of a business within no more than a year from the date of the statement of financial position

Answer 8

Current assets

Question 9

Assets that the business has brought with the intention of using them for a period of more than a year, such as machinery, motor vehicles and premises

Answer 9

Non-current assets

Question 10

Assets that can be quickly converted to cash with no loss in value

Answer 10

Liquid assets

Question 11

Businesses or individuals who have received goods or a service from the business on credit, with the understanding that payment is due within the credit period

Answer 11

Trade receivables

Question 12

Debts that must be paid within a year from the date of the statement of financial position, for example trade payables and overdraft

Answer 12

Current liabilities

Question 13

Debts that do not need to be paid within a year from the date of the statement of financial position, for example a long-term bank loan or lease

Answer 13

Non-current liabilities