Chapter 2: The accounting equation

Question 1

What are the two types of assets?

Answer 1

1) Non-current assets
2) Current assets

Question 2

What are the two types of liabilities?

Answer 2

1) Non-current liabilities
2) Current liabilities

Question 3

What is the business entity concept?

Answer 3

The idea that the business is seperate from the owner. Therefore, you do not include personal activities of the business in the financial statements.

Question 4

What is the accounting equation? (Basic)

Answer 4

Assets= Liabilities + Capital

Question 5

What is the extended accounting equation?

Answer 5

Assets- Liabilities = Opening capital + Capital injected + profit - drawings

Question 6

What is capital?

Answer 6

The amount that the business OWES the owner.

Question 7

What is the duality concept?

Answer 7

The duality concept states that every transaction has a dual effect.

Question 8

What does the statement of profit and loss show?

Answer 8

Shows the profit figure included in the calculation of capital has arisen.

Question 9

How do you calculate Cost of Sales

Answer 9

Opening inventory + Purchases - Closing inventory

Question 10

What is an expense?

Answer 10

Running costs of a business and will reduce profits which reduces capital.

Question 11

Change in net assets =

Answer 11

Opening capital + capital injected + profit - drawings