Business Ownership Structures
This business is owned and operated by one person.
What is a sole trader?
This principle states the business is separate from the owner.
What is the accounting entity principle?
This REALO category represents items the business owns and appears on the left side of the accounting equation
What are assets?
These three accounts are debit in nature.
What are Assets, Expenses, & Drawings?
Buying equipment for cash affects these two accounts.
What are Equipment & Cash?
This structure involves two or more people sharing profits and unlimited liability.
What is a partnership?
This principle assumes the business will continue operating into the future.
What is the going concern principle?
These account types increase Owner’s Equity in the accounting equation?
What are Revenue and Capital?
These two account types are examples whose balances increase through credit transactions.
Any two of the following:
What are Liabilities, Owners Equity, Revenue, or Capital?
This transaction is recorded as a debit to Cash and a credit to Capital.
What is the owner investing $10,000 cash into the business?
This company type is privately owned and shares are not available to the public.
What is a private company (Pty Ltd)?
This principle requires transactions to be recorded in dollars.
What is the monetary principle?
This REALO category includes accounts that represent obligations of the business and have a normal credit balance, meaning increases are recorded on the credit side.
What are Liabilities?
This account represents withdrawals by the owner and is classified as a negative form of Owner’s Equity because it reduces the owner’s claim on the business.
What is Drawings?
This transaction results in a debit to Wages Expense and a credit to Cash.
What is paying wages?
This structure provides limited liability but requires more regulation and reporting.
What is a company?
This principle records assets at their original purchase cost.
What is the historical cost principle?
This REALO category is sometimes described as a “special type of liability” because it represents the amount the business owes to its owner.
What is Owner’s Equity?
This version of the accounting equation shows the relationship between profit and owners equity.
What is A = L + OE + R - E
I would also accept A = L + OE + R - E + C - D
This transaction increases Accounts Receivable and increases Revenue.
What is selling services on credit?
Unlimited liability & disputes between partners.
What are disadvantages of parternships?
This principle is important as it allows performance to be measured over specific time periods (e.g. monthly/yearly) for decision-making.
What is the accounting period principle?
This REALO classification applies to an account that increases Owner’s Equity but is not a direct investment by the owner.
What is Revenue?
This is how accountants know how to increase the balance of an account.
What is the nature of accounts?
This transaction decreases a loan liability and decreases cash.
What is repaying a loan?