Lecture 3/4

Question 1

What is the purpose of a statement of a balance sheet?

Answer 1

To report financial position

Question 2

What is the purpose of an income statement (profit and loss account)

Answer 2

To report financial performance

Question 3

What is purpose of a statement of cash flows?

Answer 3

To report financial adaptability

Question 4

What is the accounting equation for a balance sheet

Answer 4

Assets - Liabilities = Ownership interest

Question 5

What is the accounting equation for a profit and loss account

Answer 5

Profit = Revenue - Expenses

Question 6

What is debit

Answer 6

A debit is an entry on the left side of an account.

Debits increase assets and expenses, and decrease liabilities, equity, and revenues.

Example:

If a company buys equipment (an asset), it debits the equipment account to show an increase in assets.
If the company pays rent (an expense), it debits the rent expense account to reflect the increase in expenses.

Question 7

What is credit

Answer 7

A credit is an entry on the right side of an account.

Credits increase liabilities, equity, and revenues, and decrease assets and expenses.

Example:

If a company takes out a loan (a liability), it credits the loan account to reflect an increase in liabilities.
If the company earns revenue from sales (income), it credits the revenue account to show an increase in income.