Accounting Basics
What is the fundamental accounting equation?
Assets - Liabilities = Owner's Equity or
Assets = Liabilities + Owner’s Equity
What order are assets listed in on a balance sheet?
Order of liquidity
What happens to assets when a company buys office furniture on credit?
Assets increase, liabilities increase
Which GAAP assumes a business will continue operating indefinitely?
Going concern concept
What is the impact on the accounting equation if a business takes out a $10,000 loan and immediately uses $4,000 of it to buy equipment?
Assets increase by $6,000 (cash), equipment increases by $4,000, liabilities increase by $10,000
What does GAAP stand for?
Generally Accepted Accounting Principles
I appear at the beginnings and ends of a balance sheet for a total of four times. What am I?
Dollar sign/currency sign.
A business performs a $500 service and gets paid in cash. What changes occur in the accounting equation?
Cash increases, Owner’s Equity increases due to revenue
What principle advises accountants to choose the less optimistic value when faced with uncertainty?
Principle of conservatism.
A business has total liabilities of $90,000 and owner’s equity of $60,000. What are its total assets?
$150 000
What is the difference between a creditor and a debtor?
Creditor is owed money; debtor owes money
What is the value of the Assets if Owner's Equity = $120,000, Liabilities = $50,000.
$170 000
If you make a change to one side of the equation analysis sheet, the other side must ________________________
Balance. Whatever is done on one side of the equation analysis sheet must be reflected on the other side so that both sides balance.
Which GAAP ensures personal and business finances are kept separate?
Business Entity Concept
A company buys equipment for $40,000, putting $10,000 down and financing the rest. After two years, it pays off another $10,000. What is the remaining liability?
Original liability = $30,000, after payments = $20,000 remaining.
Write out the Google Sheets formula used to do quick addition or subtraction. Use the cells C3 to C11 as your example numbers.
=SUM(C3:311)
The owner of a business invests $15,000 into the company. How does this affect the balance sheet?
Cash: + $15, 000
Owner's Equity: + $15, 000
The numbers on a balance sheet reflect a company's _______________ on a particular date.
Financial position.
Why can the going concern concept affect how assets are recorded on a balance sheet?
If a company is assumed to continue operations, assets can be recorded at cost rather than liquidation value.
A company has $75,000 in cash and $50,000 in liabilities. It repays $20,000 of its debt. What are the new balances?
Cash = $55,000, Liabilities = $30,000
List three of the five important pieces of information that receipts provide.
1. Who issued the receipt
2. Who received the receipt
3. Date
4. What was purchased
5. Providing objective evidence of the transaction
What is the other word/name for Owner's Equity?
Capital
A business earns $40,000 in revenue but only collects $30,000 in cash, with the remaining on credit. How does this affect assets, liabilities, and equity?
Cash increases by $30,000, Accounts Receivable increases by $10,000, and Owner’s Equity increases by $40,000 due to revenue.
A business reports an expected lawsuit gain of $50,000 on its financial statements, despite the case not being settled. What GAAP principle does this violate?
Principle of Conservatism—businesses should only recognize gains when they are confirmed, but must record potential losses.
A company starts with $80,000 in equity. During the year, it earns $20,000 in revenue, incurs $5,000 in expenses, and withdraws $8,000 for personal use. What is the new equity?
OE = 80,000 + 20,000 - 5,000 - 8,000 = $87,000