Accounting Fundamentals
1
Understanding Accounting Terms
1. Define the term Assets.
2. Using the definition above, select only the eight items that would qualify as a business asset and be
worth money.
CHOICES:
bank loan, cash, office furniture, office supplies, stocks and bonds, office equipment,
good personality, delivery truck, building, excellent employees, mortgage payable,
and land
(a) ___________________________
(e) __________________________
(b) ___________________________
(f) __________________________
(c) ___________________________
(g) __________________________
(d) ___________________________
(h) __________________________
3. Define the term Liabilities.
4. Using the definition, select only those items that would qualify as Liabilities.
CHOICES:
Cash, Accounts Payable, Office Supplies, Bank Loan, Mortgage Payable, Taxes
Payable, Delivery Truck, and Land
(a) ___________________________
(c) __________________________
(b) ___________________________
(d) __________________________
5. Explain what Owner’s Equity refers to.
6. Why is the term financial position important?
Accounting Fundamentals
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7. Write the Fundamental Accounting Equation.
8. Using the various possible rearrangements of the equation, solve the following problems.
(a) A business has a total of $56 000 in assets and $45 000 in liabilities. How much is the Owner’s
Equity?
Equation: ___________________________________
Answer:
___________________________________
(b) A business has a total of $12 000 in liabilities and Owner’s Equity of $14 000. How much is the
value of the assets?
Equation: ___________________________________
Answer:
___________________________________
(c) A business has assets of $90 000 and Owner’s Equity of $30 000. How much in debt is the
company?
Equation: ___________________________________
Answer:
___________________________________
IDENTIFYING ELEMENTS
9. Identify each of these items as either as ASSET, LIABILITY, or OWNER’S EQUITY.
(a) Office Supplies
___________________________
(b) Bank Loan
___________________________
(c) Cash in the Bank
___________________________
(d) Mortgage Payable
___________________________
(e) Delivery Van
___________________________
(f) Assets – Liabilities
___________________________
(g) Warehouse
___________________________
(h) Office Equipment
___________________________
(i) Land
___________________________
(j) Capital
___________________________
Accounting Fundamentals
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10. Explain what a Balance Sheet refers to.
11.
On a Balance Sheet:
(a)
(b)
12.
Explain what is found on each of the three lines of the heading.
Top
_________________________________
Middle
_________________________________
Bottom
_________________________________
What three sub-headings are found on a Balance Sheet?
(1)
__________________________________
(2)
__________________________________
(3)
__________________________________
On a Balance Sheet, lines in a money column have a mathematical meaning. Explain what this
means:
(a)
A single line under a column of numbers ____________________________________
(b)
A double line under a number _____________________________________________
13. What do these terms mean?
(a) Accounts Receivable (debtor)
Is this an Asset, Liability, or O.E.? ________________________
(b) Accounts Payable (creditor)
Is this an Asset, Liability, or O.E.? ________________________
Accounting Fundamentals
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14. What does the word Liquidation mean?
15. Explain the term Liquidity.
16.
Organize this list of assets in order of Liquidity.
ASSETS:
Delivery Van, Building, Cash on Hand, Accounts Receivable, Office Supplies,
Office Equipment, Cash in Bank, Office Furniture, Plant Equipment, Land
1. ___________________________________________
2. ___________________________________________
3. ___________________________________________
4. ___________________________________________
5. ___________________________________________
6. ___________________________________________
7. ___________________________________________
8. ___________________________________________
9. ___________________________________________
10. ___________________________________________
17.
Organize this list of liabilities according to their “Urgency of Payment” or
“Maturity Date Rule.”
LIABILITIES: Mortgage Loan, Bank Loan (demand), Bank Loan (5 years), Wages Payable,
Accounts Payable.
1. ___________________________________________
2. ___________________________________________
3. ___________________________________________
4. ___________________________________________
5. ___________________________________________
Accounting Fundamentals
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BALANCE SHEET
Use the following accounts to prepare a Balance Sheet for the Alpha Company owned by Jennifer Kirk.
Assets
Cash-in-bank
Accounts Receivable:
Aldrich, P.
Jones, A.
Harrison, H.
Supplies
Furniture
Equipment
Building
Land
Liabilities
$ 5 000
400
600
1 000
300
8 000
10 000
50 000
35 000
Accounts Payable:
ACME Supply
ABC Company
Dominion Inc.
Bank Loan (5 years)
Mortgage Payable
$
500
1 000
2 000
10 000
50 000
Remember to use the proper format (including underlining and dollar signs) learned in class.
____________________________________________________________________________________
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