chapter 3 - elements and accounting equation ( not done)

Question 1

Define assets

Answer 1

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

Question 2

Define liabilities

Answer 2

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

Question 3

Define income

Answer 3

amounts earned through the activities of a business

Question 4

Define expenses

Answer 4

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

Question 5

Define capital

Answer 5

resources contributed by the owner for business use

Question 6

Define drawings

Answer 6

assets taken from the business for owner’s personal use

Question 7

Define equity

Answer 7

claim by the owner on the net assets of a business

Question 8

Differences between non-current and current assets

Answer 8

-Non-current assets are benefits that last beyond 1 financial year.
-Current assets are benefits that are used within 1 financial year

Question 9

Differences between non-current liabilities and current liabilities

Answer 9

-Non-current liabilities are due to be paid beyond 1 financial year
-Current liabilities are due to be paid within 1 financial year

Question 10

What is Basic accounting equation

Answer 10

Basic accounting equation: Assets= Liabilities + Equity

Question 11

What is the expanded accounting equation

Answer 11

Expanded: Assets= Liabilities+ Capital+Income-Expenses- Drawings

Question 12

Explain how the accounting entity theory is applied to account for capital and drawings

Answer 12

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