The Accounting equation

Question 1

Asset

Answer 1

A present economic resource controlled by the entity as a result of past events i.e. something that is owned by the business, used to generate revenue.

Question 2

Liability

Answer 2

A present obligation of the entity to transfer an economic resource as a result of past events i.e. something owed to another party.

Question 3

Equity

Answer 3

The residual interest in the assets of the entity after deducting all its liabilities i.e. the value of the owners’ investment in the business.

Question 4

Profit

Answer 4

The increase in equity as a result of business activities, calculated as Income less expenses

Question 5

Loss

Answer 5

The decrease in equity as a result of business activities when expenses exceed income.

Question 6

Income

Answer 6

An amount earned by the business.

Question 7

Expenses

Answer 7

Costs incurred by the business.

Question 8

Non-current

Answer 8

Long-term, usually more than 12 months

Question 9

Current

Answer 9

Short-term, usually less than 12 months