The Accounting Equation Flashcards
What is the main purpose of preparing accounts?
To determine whether the business is operating at a profit or loss
To determine whether the business can meet its liabilities as they fall due
True or false, a profit for the period will decrease proprietor’s funds?
False
What do net assets equate to?
Proprietor’s funds
What is the accounting equation?
Assets - liabilities = capital + profits (-losses) - drawings
What effect does does buying a car on credit have on net assets?
No effect
What effect does introducing capital have on net assets?
Increase in net assets
What are proprietor’s funds comprised of?
Capital + profit for the period - drawings for the period
What is the starting point for calculating the amount of tax to be paid?
The financial statements of the business would be the starting point for the amount of tax to be paid
Does purchases appear on the balance sheet?
No
How are current assets listed?
In order of liquidity
What effect does selling stock at a profit on credit have on net assets?
Increase net assets
What effect does buying stock for cash have on net assets?
No effect
What effect will paying electricity expense and paying staff bonuses have on net assets?
Decrease in net assets
How do you calculate drawings with opening net assets, profit and closing net assets?
Opening net assets + profit - drawings = closing net assets
What effect will taking drawings and paying employees salaries have on net assets?
Decrease in net assets
