Accounting for Dummies
why is a loan from a bank not an asset?
A loan from a bank is not an asset because it represents an obligation to pay the loan back. A loan from a bank is a liability because the company must pay back the loan to the back. The cash received from the loan is an asset, but the loan is an obligation or a liability.
why is a sole partnership not one of the ways of legally organizing a business?
A sole partnership is not one of the ways of legally organizing a business because a partnership requires more than one owner. Therefore, it cannot "sole."
what makes a vehicle purchased with a loan an example of an asset?
A vehicle purchased with a loan is an example of an asset because the car has economic value to the company and is expected to provide future benefits. A car purchased by a business is a resource owned by that business. The car possesses economic value. therefore, it is an asset. it does not matter how the company paid for it. when a loan is obtained, the company must also record the loan as a liability. regardless of the method of payment, the company now has a car that will provide future benefit and has economic value.
At the end of an accounting period, a company's total assets equaled $1,450,000, and owners' equity was $654,000. How much were the company's liabilities?
Answer: $796,000 Assets= liability +equity $1,450,000= liability + $654,000 1,450,000- 654,000= Liability Liability= $796,000
what are assets?
Assets are resources of economic value owned by a business. Assets are the resources that a business owns and that possess economic value.
what is the name for resources owned by a company?
Assets. Assets are defined as economic resources owned by a business that have material value.
A business has liabilities of $345,700 and owner's equity of $154,300. Calculate the amount of assets the company has.
Assets= Liabilities + equity So, Assets= $345,700 + $154,300= Assets= $500,000
what is the proper format of the basic accounting equation?
Assets= Liability + Owners' equity The accounting equation states that assets (what the business owns) are the same as the sum of its liability and owners' equity.
at the end of an accounting, a company's total assets equaled $576,000, and liabilities equaled $245,000. How much was the company's owners' equity?
Assets= Liability + equity 576,000= 245,000- equity 576-245,000= equity equity= 331,000
At the end of an accounting period, a company' owners' equity equaled $2,376,000, and its liabilities equaled $142,000. How much were the company's assets?
Assets= Liability + equity Assets= 142,000 + 2,376,000 Assets= 2,518,000
what is the effect on the accounting equation if a company buys a truck with a cash down payment of $5,000 and borrows the remaining $25,000?
Assets= liability + equity Assets increased by $25,000, and liabilities increase by 25,000. Assets go down by 5,000, the amount of cash paid, and go up by 30,000, the cost of the truck. the net is an increase of 25,000. the loan will increase liabilities by 25,000.
Business entities can legally be organized in a variety of ways. What is a common characteristic among all business entity types?
Each business entity is treated as a separate entity for accounting purposes. For accounting purposes, business are treated separately from their owners. they are separated entities and need to be recognized as such.
what are liabilities?
Liabilities are debts that are owed to creditors (notes payable, accounts payable, salaries payable, unearned revenue. Liabilities are claims resulting from credit extended to a business. Liabilities represent what the business owes to others- that is, the claims to the business resulting from credit that was extended by other entities.
why is money owed to a bank on a loan considered a liability?
Money owed to a bank is a liability because it represents what the business owes to others. Money owed to another entity is a debt and therefore a liability. It represents a financial obligation of the company.
why is office equipment an example of an asset?
Office equipment is a resource with monetary value. Office equipment is an asset. The company purchased the equipment intending to use it for an extended period of time and derives a benefit from it.
Entering into a business with another person is an example of what type of business entity?
Partnership- A partnership is a business formed by two or more individuals (partners) and allows access to additional resources or skills
what business type is a single-owner business?
Sole-proprietorship- A sole proprietorship is the only business type that has only one owner. corporations and partnerships have multiple owners, and there are no business types called limited liability proprietorships or sole partnerships.
a business has assets of $135,000 and liabilities of $45,000. calculate the amount of owners' equity.
The basic accounting equation is assets= liabilities + owners' equity. $135,000= 45,000 + equity $135,000-$45,000= $90,000
what does it mean when a business has negative retained earnings?
The business has experienced losses. Equity reflects the earnings of a business, along with owners' investment. Retained earnings are part of equity and represent the accumulation of the earnings from the start of the business. Negative retained earnings means the business has not been generating profits.
what does i mean when a company purchases something on account?
The company pays for it by obtaining a loan or credit that must be paid back. Purchasing something on account or on credit means the company did not pay for it at the time of purchase but instead made a promise to pay for it at a later time.
which business type is most difficult to create initially but, once created, makes it easier to raise funds and provides liability protection for the owners?
corporation- A corporation provides liability protection for its owners. however, it is more difficult to establish than the other forms of business because it has to be registered with the state.
