Chapter 3

Question 1

Assets

Answer 1

Resources that a business owns or controls that are expected to provide future benefit

Question 2

Liabilities

Answer 2

Obligations owed to others that are expected to be settled in the future

Question 3

Income

Answer 3

Amounts earned through the activities of a business

Question 4

Expenses

Answer 4

Costs incurred in the operation of the business to earn income in the same accounting period

Question 5

Capital

Answer 5

Resources contributed by the owner for business use

Question 6

Drawings

Answer 6

Assets taken from the business for owner’s personal use

Question 7

Equity

Answer 7

Claim by the owner on the net assets of a business

Question 8

Non-current assets

Answer 8

Benefits that last beyond 1 financial year

Question 9

Current assets

Answer 9

Benefits that are used within 1 financial year

Question 10

Non-current liabilities

Answer 10

Due to be paid beyond 1 financial year

Question 11

Current liabilities

Answer 11

Due to be paid within 1 financial year

Question 12

Basic accounting equation

Answer 12

Assets = Liabilities + Equity

Question 13

Expanded accounting equation

Answer 13

Assets = Liabilities + Capital + Income - Expenses - Drawings

Question 14

Accounting entity theory

Answer 14

Activities of a business are separate from the actions of the owner. All transactions are recorded from the business’ point of view. Hence, assets that contribute to the business and assets that owners withdraw from business for personal use need to be recorded