Accounting Equation
What is the value of assets, if liabilities = $3165 and owner's equity = $2000?
Assets = $5165
Explain the difference between capital and drawings.
Both are OE.
Capital is money the owner has contributed to the business.
Drawings is money the owner has taken out for personal use and is a negative figure.
As at a certain date in time (often 30 June)
What is the classification and definition of mortgage?
L
A mortgage is a long-term loan with a low interest rate obtained from a lender (bank) used to purchase a premises
What does a single line within a balance sheet represent?
Debtors (A) decrease by $300
Cash (A) increase by $300
Why is debtors/accounts receivable classified as an asset?
Because the money belongs to the business, eventually the debtors must pay the business what they owe.
Explain what fixtures and fittings are and classify them.
F&F are internal fittings (eg lights, blinds) attached to the building. A
What is the impact on the accounting equation if $15,000 of a $20,000 loan from the bank was repaid?
Loan (L) decrease $15,000
Cash (A) decrease $15,000
Explain what accounts payable means and provide an example of when this may happen.
Accounts payable is when the business owes external parties money. This could happen when purchasing a motor vehicle and not paying upfront.
What is the impact on the accounting equation if the owner purchased a motor vehicle for $8000 but paid a 10% deposit?
Cash (A) decrease by $800
Creditors (L) increase by $7200
Classify bank overdraft and define what this is.
Liability
This is when the business bank account becomes negative, and money is owed to the bank.
What is net loss classified as and where is this placed within the balance sheet?
Classified as OE, placed in OE
Explain what double lines mean and what columns are used for in a balance sheet.
Double lines = grand total
Columns = used to work out 'the sum of'
What is goodwill, and what is this classified as?
Goodwill is an intangible asset that represents the company’s name, brand reputation, loyal customer base, solid customer service, good employee relations
Explain the historical cost concept.
This is the price at which assets are purchased.
What accounts are impacted if the business purchased a new piece of equipment for $15,000 but paid a 10% deposit?
Cash (A) decrease $1500
MV (A) increase $15000
Creditors (L) increase $13500
Show how owner's equity is calculated in the balance sheet, if:
Capital = $87,300
Net profit = $7,300
Drawings = $4,000
Capital + net profit
Total - drawings
= $90,600
Explain the accounting period concept.
Reports are prepared for a business for a certain period of time (eg balance sheet is prepared as at a certain date, often 30 June)
What is the impact on the accounting equation if the business purchased furniture for $20000, paying a 10% deposit, put the rest on credit and then later, after paying off the creditor, sold $5000 worth?
A $0
L $0
What is the impact on the accounting equation if the business sold goods that cost $3500 for $5000 cash?
Goods (A) decrease $3500
Cash (A) increase $5000
If furniture is purchased for $10000 with a 10% deposit paid, how is this transaction recorded (ie what debits/credits take place?)
A inc $10000, dec $1000, overall inc $10000 (debit)
L inc $9000 (credit)
If assets are $65000, liabilities are $46000, calculate net assets and owner's equity
Net assets 65000 - 46000 = 19000
Owner's equity must also be $19000!
Calculate the amount the owner contributed if:
Assets = $79,000
Liabilities = $0
Drawings = $2,000
Capital = $81,000
Explain the difference between T-format and narrative format balance sheets and do a quick sketch on the board to explain!
T - assets on left, liabilities + OE on right
Narrative - start with OE, then assets below, then liabilities below again