TOPIC 2 BASIC ACCOUNTING CONCEPTS

Liabilities

• are future economic benefits.

• are existing debts and obligations.

• possess service potential.

• are things of value used by the business in its operation.

Owner's equity can be described as

• creditorship claim on total assets

• ownership claim on total assets

• benefactor's claim on total assets.

• debtor claim on total assets

When an owner withdraws cash or other assets from a business for personal use, these withdrawals are termed

• depletions.

• consumptions.

• drawings.

• a credit line.

Capital is

• an owner's permanent investment in the business.

• equal to liabilities minus owner's equity.

• equal to assets minus owner's equity.

• equal to liabilities plus drawings

Revenues would not result from

• sale of merchandise

• initial investment of cash by owner.

• performance of services.

• rental of property.

Sources of increases to owner's equity are

• additional investments by owners.

• purchases of merchandise.

• withdrawals by the owner.

• expenses.

Owner's equity is decreased by all of the following except

• owner's investments.

• owner's withdrawals.

• expenses.

• owner's drawings

A net loss will result during a time period when

• liabilities exceed assets.

• drawings exceed investments.

• expenses exceed revenues.

• revenues exceed expenses

If total liabilities decreased by $40,000 and owner’s equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

• $50,000 decrease

• $10,000 decrease

• $10,000 increase

• $50,000 increase

If total liabilities decreased by $40,000 and owner’s equity decreased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?

• $70,000 decrease

• $10,000 decrease

• $10,000 increase

• $70,000 increase