Accounting Basics
What is the main purpose of accounting?
To provide financial information that helps people make decisions.
Something valuable that a business owns is called what?
Asset
State the Accounting Equation.
Assets = Liabilities + Owner's Equity
The owner invests $10,000 cash into the business.
Name the two accounts affected and whether they increase or decrease.
Cash +
Owner's Equity +
Which financial statement contains Revenue and Expenses?
Income Statement
A manager uses accounting information to decide whether the company can afford another employee. Is the manager an internal or external user?
Internal
Your business owes a supplier $2,000. Which account records this?
Accounts Payable
A business has:
Assets = $40,000
Liabilities = $15,000
What is Owner's Equity?
$25,000
The business purchases $4,000 of equipment for cash.
What happens?
Equipment +
Cash −
Which financial statement contains Assets, Liabilities, and Owner's Equity?
Balance Sheet
A bank reviews a company's financial information before approving a loan. Is the bank an internal or external user?
External
A customer owes your business $1,500. Which account records this, and is it an Asset or Liability?
Accounts Receivable; Asset
A business has:
Assets = $75,000
Owner's Equity = $50,000
What are Liabilities?
$25,000
The business purchases $3,000 of supplies on account.
What happens?
Supplies +
Accounts Payable +
Put these in the correct order:
Income Statement → Statement of Owner's Equity → Balance Sheet
The owner takes $600 from the business to pay for a personal vacation. What is this called?
Owner Withdrawal
Classify all four:
A business has:
Liabilities = $18,000
Owner's Equity = $42,000
What are Total Assets?
$60,000
A customer pays $2,000 that they previously owed the business.
Name the two accounts affected.
Cash +
Accounts Receivable −
A business has:
Revenue = $18,000
Expenses = $11,000
What is Net Income?
$7,000
Why is an owner's personal car payment NOT considered a business expense?
It is a personal cost, not a cost of operating the business. It is recorded as a withdrawal.
Which one does NOT belong with the others?
Answer: Accounts Payable
Why? It is a Liability. The others are Assets.
Business A has:
Assets = $100,000
Liabilities = $85,000
Business B has:
Assets = $70,000
Liabilities = $20,000
Which business has more Owner's Equity, and how much?
Business A OE = $15,000
Business B OE = $50,000
Business B has more Owner's Equity.
The business pays $1,500 that it previously owed a supplier.
Name the two accounts affected AND explain why this is not a new expense.
Cash −
Accounts Payable −
It is not a new expense because the business is paying an existing Liability.
A business has:
Owner Investment = $25,000
Net Income = $8,000
Owner Withdrawals = $3,000
What is Ending Owner's Equity?
$25,000 + $8,000 − $3,000 =
$30,000