Chapter 3 : Elements of financial statements and the accounting equation

Question 1

Define assets

Answer 1

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

Question 2

Define liabilities

Answer 2

Liabilities are debts owed by a business to others that are expeced to be repaid or settled in the future

Question 3

Define equity

Answer 3

Equity refers to the claim by the owner on the net assets of a business.

Question 4

Define income

Answer 4

Income refers to the amount earned through the activities of a business

Question 5

Define Expense

Answer 5

Expenses are cost incurred by the businesses in their operations to earn revenue and other inclme

Question 6

Explain the diffeences between current assets and non-current assets

Answer 6

non-current assets provide benefits that last for more than one financial year, and they are not easily converted to cash. On the other hand, current assets provide benefits that are used within one financial year, and can be converted to cash easily

Question 7

explain the difference between current liabilities and non-current liabilities

Answer 7

Non-current liabilities are liabilities that have a repayment period of more than one accounting year. On the other hand, current liabilities are liabilities that must be settled within one financial year.

Question 8

state the accounting equation for sole proprietorship

Answer 8

Assets = Liabilities + Equity

Question 9

State the accounting equation for private limited company

Answer 9

Assets = Liabilities + Shareholders equity

Question 10

State the expanded accounting equation for sole proprietorship

Answer 10

Assets = Liabilities + Capital + ( Income - expenses ) - Drawings

Question 12

State the expanded accounting equation for private limited company

Answer 12

Assets = Liabilities + Share Capital + ( Income - expenses ) - Dividends