Balance Sheet Calculation

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Questions and Answers

What is the Accounting equation that represents the financial position of a business?

Liabilities = Assets - Owner's Equity
Assets = Liabilities + Owner's Equity (correct)
Assets + Liabilities = Owner's Equity
Assets = Owner's Equity - Liabilities

What type of item is a vehicle classified as in a business's financial records?

Asset (correct)
Expense
Owner's Equity
Liability

What is the purpose of a Balance Sheet?

To represent the financial position of a business (correct)
To report profits and losses
To record daily transactions
To prepare financial statements

What is an example of a Liability?

GST payable (A) Signup and view all the answers

What is Owner's Equity?

What the business owes to the owner (D) Signup and view all the answers

What is the relationship between Assets, Liabilities, and Owner's Equity?

Assets = Liabilities + Owner's Equity (D) Signup and view all the answers

What is the primary purpose of a Balance Sheet?

To show the relationship between assets, liabilities, and owner's equity (C) Signup and view all the answers

Which of the following is classified as an asset?

Inventory (B) Signup and view all the answers

What is the formula for preparing a Balance Sheet?

Total Assets = Total Liabilities + Owner's Equity (D) Signup and view all the answers

What is the purpose of preparing a Balance Sheet as at a specific date?

To present the financial position of a business at a specific point in time (C) Signup and view all the answers

Which of the following is classified as a liability?

Loan (D) Signup and view all the answers

What is Owner's Equity?

The residual interest in the assets of a business after deducting liabilities (B) Signup and view all the answers

What is the relationship between Total Assets and Total Equities?

Total Assets are equal to Total Equities (A) Signup and view all the answers

What is the purpose of classifying assets, liabilities, and owner's equity?

To present the financial position of a business (C) Signup and view all the answers

What is the correct order of classification in a Balance Sheet?

Assets, Liabilities, Owner's Equity (C) Signup and view all the answers

What is the purpose of preparing a Balance Sheet at regular intervals?

To present the financial position of a business at regular intervals (B) Signup and view all the answers

What is the primary purpose of an income statement?

To show the revenues and expenses of a company over a specific period of time (A) Signup and view all the answers

Which of the following is not a cash receipt for Christi's Car Clean Emporium?

Drawings (A) Signup and view all the answers

What is the purpose of the 'Less Other expenses' section in the income statement?

To subtract the total expenses from the total revenue (A) Signup and view all the answers

What is the correct format for an income statement?

Revenue - Expenses = Net Profit (C) Signup and view all the answers

What is the net profit (loss) for Christi's Car Clean Emporium for January 2024?

$2,430 (B) Signup and view all the answers

Which of the following is an example of a cash payment for Christi's Car Clean Emporium?

Wages (B) Signup and view all the answers

What is the purpose of an income statement in financial statement preparation?

To evaluate the company's financial performance over a specific period of time (C) Signup and view all the answers

Which of the following is not a revenue item for Christi's Car Clean Emporium?

Rent (A) Signup and view all the answers

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Study Notes

Balance Sheet

A Balance Sheet shows the relationship between assets, liabilities, and owner's equity
It is prepared as at a specific date and is a snapshot of the business's financial position at that time
Total Assets = Total Equities
Assets: what the business owns (e.g. cash, furniture, equipment)
Liabilities: what the business owes to external financial institutions and the owner (e.g. loan, accounts payable)
Owner's equity: what the business owes to the owner (e.g. capital)

Preparing a Balance Sheet

Format: Assets, Liabilities, and Owner's equity are listed separately
Example: Singh's Studios Balance Sheet as at 31 May 2025
- Assets: cash at bank 5000,furniture5000, furniture 5000,furniture15000, equipment $25000
- Liabilities: loan $15000
- Owner's equity: capital $30000

Income Statement

Format: Revenue, Less Other Expenses, and Net Profit (Loss) are listed
Example: Christi's Car Clean Emporium Income Statement for January 2024
- Revenue: cash fees 7430,capital7430, capital 7430,capital10000
- Less Other Expenses: wages 2250,cleaningsupplies2250, cleaning supplies 2250,cleaningsupplies3000, drawings 700,equipment700, equipment 700,equipment9000, advertising 300,rent300, rent 300,rent2000
- Net Profit (Loss)

Accounting Equation

Assets = Liabilities + Owner's Equity
Assets: items that a business owns and controls (e.g. cash, inventory, accounts receivable, vehicle, furniture, equipment, premises)
Liabilities: items that a business owes to others and has an obligation to pay back (e.g. accounts payable, GST payable, loan, mortgage, wages owing, bank overdraft)
Owner's equity: what the business owes to the owner (e.g. capital, drawings)