Review Questions 2

Company

The Accounting Equation

The Accounting Equation Assets = Liabilities + Proprietorship Uses of funds = Sources of funds. The accounting equation is the relationship between the total assets, the Liabilities and the proprietorship of a business at a certain date

As stated earlier, when a company is new it is like an empty box. When money comes in from various sources, it is used in various ways. It may be kept in the bank or it may be used to buy land, buildings or raw materials or it may be used to pay wages and salaries. There must, however, always be a balance. The various uses to which the money is put will be equal to the amount of money which has come into the business

The accounting equation can be written in other ways

Proprietorship = Assets • Liabilities

Liabilities = Assets - Proprietorship

a) What is a company? ________________________________

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b) What does "separate legal entity" mean?_______________________________________

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c) What does "proprietorship" mean? ______________________________________________________________________________________________________________________________________________________________

d) What is another name for "proprietorship"?________________________________________________________________________________________________________________________________________________

e) What is an asset? ________________________________________________________

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f) Write down what your 3 main assets are

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g) What is a liability? ________________________________________________________

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h) Divide the following into assets and liabilities

Land, bank loan, furniture, accounts payable, inventories, cash at bank, bonds,

accounts receivable, vehicles, income tax payable, premises, equipment

Assets	Liabilities

i) Complete the tables below:

Assets

Class: Members(types): Examples:

Class: Members(types): Examples:

Liabilities

j) What is the difference between current assets and fixed assets? ______________________________________________________________________________________________________________________________________________________________

k) What is the difference between current liabilities and long term liabilities? ______________________________________________________________________________________________________________________________________________________________

1) What is the accounting equation? ______________________________________________________________________________________________________________________________________________________________

m) Why is the accounting equation always in balance? _______________________________________________________________________________

n) If a company's assets are $140,017 and its liabilities total $74,215, what is the owners' equity? Explain how you arrived at this answer? ________________________________________________________________________________________________________________

Financial Statements

At the end of the accounting process the accountant produces financial statements. By carefully analyzing these documents, accountants and interested parties can get a fairly clear idea of the financial condition of a company.

Financial Statements Financial statements,the end-products of the accounting process, allow interested parties to make judgments on how well a company is doing.

The two most important financial statements are the balance sheet and the income statement.

  Balance Sheet ________________________________________________ The balance sheet shows the financial position of a company at one point in time. Income Statement______________ The income statement shows the financial performance of a company over a period of time.

Financial statements allow interested parties to compare one organization with another or to compare accounting periods within one organization. For example, an investor may compare the most recent income statements of two companies in order to decide which one to invest in.

The accounting period is a set period of time into which financial transactions are divided in order to make the accounting process and interpretation easier. It may be a month or it may be a year depending on the purpose. A company may be interested in its monthly performance whereas the taxation department is interested in a one-year period

What accounting period do you use for your personal finance? Why?

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Дата добавления: 2014-12-23