Chapter 5: Owners Interest/Equity (Capital)

Question 1

What is the formula for owners equity/interest

Answer 1

Capital + additional capital + profit/-loss - withdrawals

Question 2

Explain the double entry principle (duality concept)

Answer 2

E = A - L

Determines that the financial position of an entity is defined in terms of the accounting equation

Basically financial position = accounting equation

Every transaction will affect the financial position.

Question 3

What are the funds and assets that an owner invests in an entity called?

Answer 3

Owner’s equity/ capital

Question 4

Additional capital may be invested at any time during the duration of the entity

True or False

Answer 4

True

Question 5

Withdrawals are not regarded as an expense but instead as a reduction of liability

True or false

Answer 5

False, but instead as a reduction of equity

Question 6

Source documents

Answer 6

Capital contribution: Bank deposit and receipt

Buildings and vehicles: Valuation certificates and receipts

Drawings: cheque counterfoil

Question 7

When is equity paid out to the owner

Answer 7

Equity is only paid to the owner when the entity closes down or is sold