POA notes chapter 3

Question 1

What are the five accounting elements that represent all business activities?

Answer 1

Assets, liabilities, equity, income, expenses

Question 2

What are assets?

Answer 2

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

Question 3

What are liabilities?

Answer 3

Liabilities are obligations owed by a business to others that are expected to be settled in the future.

Question 4

What are equities?

Answer 4

Equities are claims by the owner on the net assets of a business

Question 5

What is income?

Answer 5

Income is the amounts earned from the activities of a business

Question 6

What are expenses?

Answer 6

Expenses are costs incurred to earn income in the same accountint period

Question 7

What are examples of assets?

Answer 7

Office equipment, motor vehicles, inventory, trade receivables, cash at bank, cash in hand, income receivables, prepaid expenses

Question 8

Give an explanation of office equipment.

Answer 8

electronic equipment used in office (e.g computers, printers)

Question 9

give me an explanation of motor vehicles.

Answer 9

Vehicles for business use (eg vans, trucks)

Question 10

Give me an explanation of Inventory.

Answer 10

goods bought by the business to sell to its customers

Question 11

Give me an explanation of trade receivables.

Answer 11

Amounts collectible from credit customers.

Question 12

Give me an explanation of Cash at bank

Answer 12

Cash deposited with the bank

Question 13

Give me an explanation of Cash in hand

Answer 13

Physical cash kept by the business

Question 14

Give me an explanation of income receivables

Answer 14

Income earned but not yet collected

Question 15

Give me an explanation of Prepaid expenses

Answer 15

Expenses not incurred but paid in advancfe

Question 16

What are examples of Liabilities?

Answer 16

Loan from X, Mortgage loan, trade payables, bank overdraft, income received in advance, expense payable

Question 17

Give me an explanation of Loan from X.

Answer 17

Money borrowed from X, which may be banks and other lenders

Question 18

Give me an explanation of Mortgage loan

Answer 18

Money borrowed using collaterals

Question 19

Give me an explanation of Trade payables

Answer 19

Amounts owed to credit suppliers

Question 20

Give me an explanation Bank overdraft

Answer 20

Money borrowed when the bank account is overdrawn and the available balance goes to zero.

Question 21

Give me an explanation income received in advance

Answer 21

Income not earned but collected in advance

Question 22

Give me an explanation of Expense payable

Answer 22

The expense incurred but not yet paid

Question 23

What are some examples of equities?

Answer 23

Capital, profit or loss for the period, drawings

Question 24

Give me an explanation of Capital

Answer 24

Resources cointributed by the owner for business use

Question 25

Give me an explanation of Profit or Loss for the period

Answer 25

The difference between the income earned and the expenses incurred within one accounting period

Question 26

Give me an explanation of the drawings

Answer 26

Assets taken from the business for the ownerś personal use.

Question 27

What are examples of the components of shareholderś equity?

Answer 27

Share capital, Retained earnings (or accumulated losses), Dividends

Question 28

Give me an explanation of Share capital.

Answer 28

Cash raised by issuing shares to investors

Question 29

Give me an explanation of retained earnings (or accumulated)

Answer 29

Accumulation of profits and losses that has not been distributed to shareholders yet since operation

Question 30

Give me an explanation of Dividends.

Answer 30

A portion of retained earnings that is distributed to shareholders

Question 31

Define Revenue.

Answer 31

Revenue refers to amounts earned through the main activities of the business. For a trading business, its main activity is the sale of goods.

Question 32

give me an example of revenue for trading business.

Answer 32

Sales revenue

Question 33

Define sales revenue

Answer 33

Money earned from selling goods.

Question 34

Give me an example of revenue for service businesses.

Answer 34

Service fee revenue.

Question 35

Define service fee revenue.

Answer 35

Money earned from providing services (eg legal fee revenue)

For a service business, its main activity is to provide services

Question 36

Define ´other income’

Answer 36

Other income refers to amounts earned from business activities other than the main business activity.

Question 37

What are examples of other income?

Answer 37

Rent income and Discount received

Question 38

Define ‘rent income’

Answer 38

Money earned from letting out part of the shop/office space

Question 39

Define ‘discount received’

Answer 39

Cash discount received from credit suppliers for making early payment

Question 40

What are examples of expenses for trading business?

Answer 40

Cost of sales

Question 41

Define ‘ cost of sales’

Answer 41

total cost price of good that have been sod.

Question 42

What are examples of other expenses?

Answer 42

A business may incur many other expenses.

1) Interest expense
2) Depreciation of non-current assets
3) Discount allowed

Question 43

Define ‘interest expense’

Answer 43

Charges for borrowing money from banks or other leaders

Question 44

Define’ depreciation of non-current assets

Answer 44

A portion of the original cost of the non-current asset allocated over its useful life

Question 45

Define ‘Discount allowed’

Answer 45

Cash discount given to credit customers for making early payment.