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Questions and Answers
If an entity's Assets increase and its Liabilities remain constant, what is the effect on the Net Worth?
If an entity's Assets increase and its Liabilities remain constant, what is the effect on the Net Worth?
- There is no relationship between assets and net worth.
- The Net Worth decreases.
- The Net Worth increases. (correct)
- The Net Worth remains constant.
How would a Net Worth be affected if only liabilities increase, while assets remain constant?
How would a Net Worth be affected if only liabilities increase, while assets remain constant?
- Net Worth increases by the same amount.
- Net Worth decreases by the same amount. (correct)
- Net Worth could increase or decrease based on other factors.
- Net Worth remains unaffected.
In the fundamental accounting equation (Assets - Liabilities = Net Worth), an increase in Assets, assuming Liabilities remain constant, implies that Assets are acting as the:
In the fundamental accounting equation (Assets - Liabilities = Net Worth), an increase in Assets, assuming Liabilities remain constant, implies that Assets are acting as the:
- A control variable to offset liabilities.
- Subtrahend, leading to decrease in Net Worth.
- Minuend, leading to an increase in Net Worth. (correct)
- The independent variable.
What effect does an increase in Liabilities have on Net Worth if Assets remain constant?
What effect does an increase in Liabilities have on Net Worth if Assets remain constant?
If a company experiences a decrease in Assets while maintaining constant Liabilities, how is its Net Worth affected?
If a company experiences a decrease in Assets while maintaining constant Liabilities, how is its Net Worth affected?
In accounting terms, what are variations that produce increases in Net Worth called?
In accounting terms, what are variations that produce increases in Net Worth called?
What term describes the variations that cause decreases in a company's Net Worth?
What term describes the variations that cause decreases in a company's Net Worth?
According to the concept of static accounting equality, if the initial capital remains constant over time, what does an increase in Net Worth imply?
According to the concept of static accounting equality, if the initial capital remains constant over time, what does an increase in Net Worth imply?
If the initial capital remains constant, what does a decrease in Net Worth imply?
If the initial capital remains constant, what does a decrease in Net Worth imply?
If a company decides to expand and a liability decreases, what corresponding action would increase the net worth?
If a company decides to expand and a liability decreases, what corresponding action would increase the net worth?
Flashcards
Increase in Assets (aA)
Increase in Assets (aA)
If only assets increase and liabilities remain constant, equity increases.
Decrease in Assets (dA)
Decrease in Assets (dA)
If only assets decrease and liabilities remain constant, equity decreases.
Increase in Liabilities (aP)
Increase in Liabilities (aP)
If only liabilities increase and assets remain constant, equity decreases.
Decrease in Liabilities (dP)
Decrease in Liabilities (dP)
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Active Variations (Va)
Active Variations (Va)
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Passive Variations (Vp)
Passive Variations (Vp)
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Increase in Net Worth (aPN)
Increase in Net Worth (aPN)
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Decrease in Net Worth (dPN)
Decrease in Net Worth (dPN)
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Study Notes
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The analysis will focus on the effects on Net Worth (Patrimonio Neto) due to variations in individual asset or liability items.
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Based on the static accounting equation: A - P = PN
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If only the Asset increases (aA), and the liability remains constant, the Net Worth increases in the same amount.
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This is because the asset serves as the minuend in the equation.
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If only the Asset decreases (dA), and the liability remains constant, then the Net Worth decreases in the same amount.
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If only the Liability increases (aP), and the asset remains constant, then the Net Worth decreases by the same amount.
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The liability acts as the subtrahend in this case.
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If only the Liability decreases (dP), and the asset remains constant, then the Net Worth increases in the same amount.
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This has a negative sign.
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Increases in Assets (aA) and decreases in Liabilities (dP) lead to an increase in Net Worth.
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Decreases in Assets (dA) and increases in Liabilities (aP) lead to a decrease in Net Worth.
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Variations that cause increases in Net Worth (aPN) are called Active Variations (Va).
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Variations that cause decreases in Net Worth (dPN) are called Passive Variations (Vp).
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If static equality has the capital (C) as the only component of Net Worth, and it remains constant, any increase in PN will be a positive result and any decrease will be a negative result.
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