Accounting Principles and Financial Position
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Questions and Answers

What does the Statement of Financial Position show?

It shows what the business is worth in terms of the properties it owns, the debts it owes, and the investment of its owners.

The statement of financial position includes only current assets.

False

Assets are economic resources with future benefits that are owned and controlled by the _____

company

Which of the following is considered a current asset?

<p>Cash</p> Signup and view all the answers

What is the formula for expressing the relationship between assets, liabilities, and equity?

<p>Assets = Liabilities + Equity</p> Signup and view all the answers

Match the following asset types with their definitions:

<p>Cash = All money received and paid by the company Receivable = Accounts that are unpaid by customers towards the company Inventories = Products or goods held for sale by a company Supplies = Products or goods consumed by a company during day-to-day operations</p> Signup and view all the answers

The formula for calculating depreciation expense is: _____ = Cost of PPE - Salvage Value / Estimated Useful Life

<p>Depreciation Expense</p> Signup and view all the answers

Study Notes

Statement of Financial Position

  • Represents resources owned by a company that can be used or realized for more than one year.
  • Shows the worth of the business in terms of properties owned, debts owed, and owner investments.
  • Informs the financial condition of a business at a specific date.
  • Follows the accounting equation: Assets = Liabilities + Equity.

Accounting

  • Process of identifying, measuring, and communicating economic information to facilitate informed judgments and decisions.

Types of Financial Statements

  • Statement of Financial Position: Highlights what the company owns and owes at a specific point in time.
  • Statement of Comprehensive Income: Summarizes income, expenses, and profits over a period.
  • Statement of Changes in Equity: Shows changes in equity from transactions and events.
  • Statement of Cash Flows: Details cash inflows and outflows over a period.

Assets

  • Economic resources with future benefits owned and controlled by a company.
  • Can be tangible (physical items) or intangible (rights and privileges).

Current Assets

  • Resources that can be used or realized within 1 year.
  • Includes:
    • Cash: All money received and paid, including cash in bank, on hand, and cash equivalents.
    • Receivables: Accounts that customers owe to the company; can arise from trade (current) or written promises to pay (non-current).
    • Inventories: Products held for sale, representing the cost of unsold merchandise.
    • Supplies: Goods consumed during day-to-day operations, not held for sale.
    • Prepaid Expenses: Payments made in advance for future benefits or services.

Non-Current Assets

  • Resources held for more than one year.
  • Includes:
    • Property, Plant, and Equipment (PPE): Physical assets used in operations, subject to depreciation calculated as:
  • Depreciation Expense = (Cost of PPE - Salvage Value) / Estimated Useful Life*.
    • Furnishings & Fixtures: Office furniture and tools essential for operations.
    • Equipment: In-room technology necessary for daily tasks, such as computers and calculators.

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Statement of Financial Position (PDF)

Description

This quiz focuses on the statement of financial position, highlighting long-term resources owned by a company. It covers the fundamental concepts of accounting, including the identification and measurement of economic resources. Test your understanding of these critical accounting principles.

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