The Accounting Equation and the concept of Double-Entry

Question 1

Define assets.

Answer 1

Assets are resources owned by the business to carry out its business activities.

Question 2

Distinguish between non-current assets and current assets.

Answer 2

Non-current assets
- Can be used for more than one year and not meant for resale

Current assets
- easily converted into cash, and are expected to be sold or used up within one year

Question 3

Define liabilities.

Answer 3

Liabilities are amounts that the business owes to other people or businesses.

Question 4

Distinguish between non-current and current liabilities.

Answer 4

Non-current liabilities
- Repayment period is more than one year

Current liabilities
- amount owed must be paid up within one year

Question 5

Define equity.

Answer 5

Equity comprises the amount contributed by the owner and the profit generated by the business.

Question 6

Define income.

Answer 6

Income refers to the earnings of a business which consists of (i) revenue, (ii) other income and (iii) other gains.

Question 7

Define expenses.

Answer 7

Expenses are incurred by the business to generate income. The benefits generated do not last into the future.

Question 8

State the accounting equation.

Answer 8

Assets = Equity + Liabilities

Question 9

State the double-entry recording rule.

Answer 9

1. Each transaction will have at least one debit entry to one account and at least one credit entry to another account.
2. The total debit value must always equal the total credit value for each transaction.

Question 10

State the purpose of a narration in the General Journal.

Answer 10

It provides a brief description of the transaction.