By: Avery Lor Date: 2022-07-11 Identification of types of accounts | Unit 2 1. Identify the following accounts by stating if they are an asset, liability, or neither. Hint: Remember the GAAP - Business Entity Concept. The Business Entity Concept: The accounting for a business organization must be kept separate from the personal affairs of its owner, or from any other business. The owner of a business cannot put his/her own personal assets and liabilities on the balance sheet for their business (e.g., home, car, property, son's hockey fees). Name Type of account? A bank loan Liability, since the bank loan is money that the business owes to the bank, which is the creditor in this case. A company automobile Asset, since the automobile has a dollar value and is owned by the business and not the owner. Furthermore, no money is owed on this company's automobile. Cash Asset, since cash has a monetary value and is owned by the business and not the owner. It is not specified that any cash is owed in this example, therefore, it is not a liability. Equipment used by the business Asset, since generally equipment used by a business is bought and owned by the company, not the owner. This equipment has a dollar value and in the example, nothing specifies that the equipment is owed to a creditor. Fees due to Little League Baseball for daughter Neither, since this fee is applicable to the owner, not the business. Allowing this to be counted as a liability towards the business would be breaking the business entity concept. Interest owed by the company to various organizations Liability, since this interest has a dollar value that is owed to a creditor by the company, not the owner. Land Asset, since land has a dollar value and it is By: Avery Lor Date: 2022-07-11 owned by the business, not the owner. Nothing specifies in this question that this land is owed to a creditor so it cannot be a liability. Money owed to the electrician who fixed a light in the office Liability, since the electrician fixed a light in the company’s office. Therefore, the money owed to the electrician is the company’s responsibility and they must repay the creditor. Remember, liabilities is any money owed to a creditor. Money owed to the business by various customers Asset, since any money owed to the business by a customer would count as an account receivable. This is a type of asset. Owner’s car Neither, since this is the owner’s property. A car belonging to the owner would count as an asset towards the owner. However, due to the business entity concept, the owner’s assets would be separate from the bank’s and therefore, it would be neither. Owner’s personal Mastercard Neither, since this is the owner’s personal mastercard. All the money on the mastercard would count as an asset towards the owner. However, due to the business entity concept, the owner’s assets would be separate from the bank’s and therefore, it would be neither. Personal furniture in your house Neither, since this is personal furniture belonging to the owner of the company. Furniture has a monetary value and is thus an asset. However, due to the business entity concept, the owner’s assets would be separate from the bank’s and therefore, it would be neither. Supplies for the business Assets, since supplies that the business uses would have a monetary value. There is nothing in the example that indicates that these supplies are owed to a creditor. Additionally, these supplies would be owned by the business, not the owner. The mortgage on the building Liability, since a mortgage on a building that the business owns, would be the company’s responsibility to pay back the credit. In other words, this building was bought using a By: Avery Lor Date: 2022-07-11 mortgage by the company, so it is the company’s liability to pay back the creditor and not the owner’s. Note - A mortgage is a loan that is used to purchase land with that property being used as collateral.
