Chpt 14

Question 1

Define equity

Answer 1

Owners claim on the net assets of the business

Question 2

Define capital

Answer 2

Capital refers to the contribution of resources into the business by the owner for business use.

Question 3

Define drawings

Answer 3

Drawings refers to the withdrawal of assets from the business by the owner for personal use.

Question 4

Accounting theory for capital contributions and drawings by owner

Answer 4

According to accounting entity theory, …… Thus, the amount contributed by the owner to the business and the amount withdrawn by the owner from the business for personal use should be recorded as capital and drawings respectively.

Question 5

What causes the change in owners equity

Answer 5

• Additional capital contribution by the owner
• Drawings by the owner
• Profit or loss made during the year.

Question 6

Ways to increase the owners equity of the business

Answer 6

• Owner contributes assets into the business
• Business makes profit from selling goods and providing services
• Business earns other income such as commission income and discount received.

Question 7

Define share capital

Answer 7

Share capital are the amount of funds that a company raised by issuing shares to shareholders.

Question 8

Define dividend

Answer 8

Dividend is a portion of the retained earnings that is distributed to the shareholders.

Question 9

Define retained earnings

Answer 9

Retained earnings are the accumulation of profits and losses that has not yet been distributed to shareholders yet since operation.

Question 10

What causes the change in shareholders equity

Answer 10

• Issuance of new shares
• Declaration of dividends
• Profit or loss for the period