The Accounting Equation

Assets, liabilities, and owner's equity are terms that refer to which of the following?

• The basic elements of a balance sheet

• Types of business transactions

• Methods of calculating profit

• Forms of business ownership

The accounting equation can be stated as:

• Assets = Liabilities + Owner's Equity

• Assets = Liabilities - Owner's Equity

• Assets = Owner's Equity - Liabilities

• Assets + Liabilities = Owner's Equity

The accounting equation can be applied in a simple example as: Assets = Liabilities + Owner's Equity. Which of the following is a correct application of this equation?

• If a business has $10,000 in assets and $4,000 in liabilities, owner's equity is $6,000.

• If a business has $10,000 in assets and $4,000 in liabilities, owner's equity is $14,000.

• If a business has $10,000 in assets and $6,000 in owner's equity, liabilities are $16,000.

• If a business has $10,000 in assets and $6,000 in liabilities, owner's equity is $16,000.

What is an asset according to the worksheet?

• A document that records only expenses of the business.

• A liability that the business owes to others.

• Something owned by the business.

• A service provided by the business to its customers.

Which of the following is a characteristic of Non-Current assets?

• To be used in the business for more than 1 year. The value will not change within 1 year.

• To be used in the operation of the business within 1 year. The value fluctuates within that 1 year.

Which of the following is a characteristic of Current assets?

• To be used in the business for more than 1 year. The value will not change within 1 year.

• To be used in the operation of the business within 1 year. The value fluctuates within that 1 year.

Premise, Furniture, Fixtures, Fittings, Vehicles, Machinery, Goodwill, Investment, and Fixed Deposit are examples of which type of asset?

• Non-Current assets

• Current assets

• Liquid assets

• Intangible assets

Cash in bank, Cash in hand, Closing Inventory, Trade Receivables, Prepayment, and Accrued Income are examples of which type of asset?

• Current assets

• Fixed assets

• Intangible assets

• Contingent assets

True or False: The value of Non-Current assets will not change within 1 year.

• True

• False

The value of Current assets fluctuates within 1 year.

• True

• False