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Questions and Answers
Which of the following accounting elements normally has a credit balance?
When there is an increase in the amount of an accounting element, what should be done according to the 'rules of addition and subtraction by position'?
Which of the following is considered an 'additional accounting element or value' introduced in the text?
What is the main purpose of a business according to the text?
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Which of the following accounting elements is used to account for the money withdrawn by the owner or partners for personal use?
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What is the purpose of a T-account according to the text?
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Which term refers to the owner's interest in the assets of a business?
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What is the fundamental accounting equation that relates assets, liabilities, and equity?
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In double-entry bookkeeping, which side of the accounting equation represents creditors?
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What does the term 'DR' stand for in accounting terminology?
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Which financial item represents amounts owed by a business to suppliers for goods or services received?
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What is the term used to describe the owner's withdrawal of assets from a business for personal use?
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What are the three basic accounting values or elements affected by business transactions?
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Which of the following is considered an intangible asset in accounting?
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What is the key requirement for a property to be classified as an asset in accounting?
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In accounting, what are amounts owed by the business known as?
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Which of the following is NOT typically considered a tangible asset in accounting?
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What category would drawings by the owner fall into when recorded in accounting?
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Study Notes
Accounting Elements
- There are three basic accounting elements: Assets, Liabilities, and Equity.
Assets
- Are properties or economic resources owned by the business.
- Examples: Cash, receivables, furniture and fixtures, office equipment, machineries, delivery truck, land, building, etc.
- Tangible assets: can be seen and touched.
- Intangible assets: have no physical appearance, but have value (e.g. franchise, patent, trademark, copyright, goodwill, etc.).
Liabilities
- Are amounts owed by the business.
- Examples: Payables to suppliers, loan with a bank, mortgage payable, taxes payable, and other unpaid (accrued) expenses.
Equity (Owner's Equity)
- Is the owner's interest or claim in the assets of the business after subtracting the interest of the creditors.
- Is the difference between the amount of assets and amount of liabilities.
The Accounting Equation
- Assets = Liabilities + Equity
- Is the fundamental accounting equation, and the foundation of the modern double-entry method of bookkeeping.
Debit and Credit
- Traditionally, the left side of the accounting equation is called Debit (DR), and the right side is called Credit (CR).
- Assets have normally debit balances, while liabilities and owner's equity have normally credit balances.
Rules of Addition and Subtraction by Position
- Increase in amount: add on the same side.
- Decrease in amount: subtract on the opposite side.
T Account
- Is an accounting device used to summarize the changes in the accounting elements.
- Is called a T account because of its T shape.
Additional Accounting Elements
- Revenues: earned by the business.
- Expenses: incurred by the business.
- Withdrawals: made by the owner for personal use.
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Description
Test your knowledge on the recording process and basic accounting elements such as assets, liabilities, and equity. Learn about how business transactions impact these fundamental accounting values.
