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Questions and Answers
What do you call the amount you owe to others?
What do you call the amount you owe to others?
- Assets
- Liabilities (correct)
- Revenue
- Equity
What is the equation that represents the relationship between Assets, Liabilities, and Owner's Equity?
What is the equation that represents the relationship between Assets, Liabilities, and Owner's Equity?
- Assets - Liabilities = Owner's Equity
- Owner's Equity - Liabilities = Assets
- Liabilities + Owner's Equity = Assets
- Assets = Liabilities + Owner's Equity (correct)
Which of the following terms is NOT synonymous with Owner’s Equity?
Which of the following terms is NOT synonymous with Owner’s Equity?
- Liabilities (correct)
- Net Worth
- Owner's Equity
- Stockholders' Equity
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Study Notes
The Accounting Game: Lemonade Stand
- The text uses a lemonade stand as a metaphor to learn about accounting.
- The lemonade stand starts with $5 in cash, which is considered an asset.
- The owner also has Notes Payable of $10, representing money borrowed from parents.
- Assets are what a company owns, while liabilities represent what a company owes to others.
- Owner’s Equity represents the owner's share of the business.
- Assets are equal to the sum of Liabilities and Owner's Equity.
- The lemonade stand sells lemonade for $0.50 per glass.
- The cost of producing one glass of lemonade is $0.20.
- The lemonade stand makes a profit of $15 after selling 50 glasses.
- Expenses are costs incurred in running the business, like glass rental, advertising, and rent.
- Expenses are paid out of cash.
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