Chapter 3 Elements of financial statement 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 expected 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 the business

Question 4

Define income

Answer 4

Income refers to amount earned through activities of a business

Question 5

Define expenses

Answer 5

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

Question 6

Explain the difference 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 provides benefits that are used within one financial year and they 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

Accounting equation of SP

Answer 8

Assets=liabilties+equity

Question 9

Accounting equation of PLC

Answer 9

Assets= liabilities + shareholder equity

Question 10

Expanded accounting equation of SP

Answer 10

Assets= Liabilities + Capital + (income-expenses) -drawings

Question 11

Expanded accounting equation of PLC

Answer 11

Assets = liabilities + share capital + (income-expense) - dividends