Unit 3 Acc Chapter 02 Review Questions (The Accounting Equation)

Question 1

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q1. Define the term ‘asset’.

Answer 1

An asset is a resource controlled by an entity, as a result of a past event, from which future economic benefit will flow to the entity.

Question 2

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q2. List three assets that would be found in the Balance Sheet of a typical trading firm.

Answer 2

●	bank
●	debtors
●	stock
●	fixtures and fittings
●	vehicles
●	premises
●	equipment

Question 3

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q3. Define the term ‘liability’.

Answer 3

A liability is a present obligation of the entity as a result of past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

Question 4

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q4. List three liabilities that would be found in the Balance Sheet of a typical trading firm.

Answer 4

● bank overdraft
● creditors
● loan
● mortgage

Question 5

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q5. Define the term ‘owner’s equity’.

Answer 5

Owner’s equity is the residual interest in the assets of the entity after the deduction of its liabilities.

Question 6

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q6. Referring to one accounting principle, explain how a business can ‘owe its owner’.

Answer 6

The entity principle states that the business and the owner are separate entities (separate beings). The business’s assets will always exceed its liabilities; thus, there will be an amount left over that the firm owes to the owner. This is known as the owner’s claim on the assets of the firm.

Question 7

RQ 2.1 // Assets, Liabilities and Owner’s Equity

Q7. State the accounting equation.

Answer 7

Assets = Liabilities + Owner’s equity