U3, AOS 1 - KK3 - Accounting Elements

Question 1

Current Asset

Answer 1

a present economic resource controlled by the entity (as a result of past events) that is reasonably expected to be converted to cash, sold or consumed within the next 12 months after the end of the reporting period.

Economic resource = rights to an economic or financial benefit

Question 2

Non-current asset

Answer 2

a present economic resource controlled by the entity (as a result of past events) that is not held for resale and is reasonably expected to be used for more than the next 12 months after the end of the reporting period.

Economic resource = rights to an economic or financial benefit

Question 3

Current liability

Answer 3

present obligation of the entity (arising from past events) that are reasonable expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.

Present obligation = legal responsibility

Question 4

Non-current liability

Answer 4

present obligation of the entity (arising from past events) that are not expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.

Present obligation = legal responsibility

Question 5

Revenue

Answer 5

Are increases in assets or decreases in liabilities that result in increases in owner’s equity, other than those relating to contributions from the owner.

Question 6

Expense

Answer 6

Are decreases in assets or increases in liabilities that result in decreases in owner’s equity, other than drawings.

Question 7

What is an asset?

Answer 7

Definition: Assets are economic resources owned or controlled by a business that are expected to provide future benefits.

Examples: Cash, accounts receivable, inventory, property, equipment, and investments.

Question 8

What are liabilities?

Answer 8

Definition: Liabilities are obligations of a business that arise from past transactions and are expected to result in an outflow of resources.

Examples: Accounts payable, loans, bonds, and accrued expenses.

Question 9

What is owners equity?

Answer 9

Definition: Equity represents the ownership interest in a business after subtracting its liabilities from its assets.

Examples: Capital, net profit/loss, drawings, capital contribution

Question 10

What is revenue?

Answer 10

Definition: Revenue is the income earned by a business from its primary operations, such as the sale of goods or services.

Examples: Sales revenue, service revenue, interest revenue, and rental revenue.

Question 11

What are expenses?

Answer 11

Definition: Expenses are the costs incurred by a business to generate revenue during its normal operations.

Examples: Cost of goods sold, wages, utilities, rent, and interest expenses.

Question 12

What is the acronym used to help you remember the accounting elements?

Answer 12

DEALER

Dividends (Y12 content)
Expenses
Assets
Liabilities
Equity (owners)
Revenue

Question 13

Which of the following is considered an asset in accounting?

a) Accounts payable
b) Notes payable
c) Accounts receivable
d) Salaries expense

Answer 13

c) Accounts receivable

Question 14

What does the equity of a business represent?

a) Total revenue generated
b) Total assets minus total liabilities
c) Total expenses incurred
d) Total liabilities minus total assets

Answer 14

b) Total assets minus total liabilities

Question 15

Which of the following is an example of revenue in accounting?

a) Rent expense
b) Equipment purchase
c) Dividend payment
d) Service fees earned

Answer 15

d) Service fees earned

Question 16

What is the primary characteristic of liabilities in accounting?

a) They represent ownership in the business.
b) They include the costs of goods sold.
c) They are future economic benefits.
d) They represent obligations of the business.

Answer 16

d) They represent obligations of the business.

Question 17

Which of the following represents a direct cost associated with producing goods sold during a specific period?

a) Revenue
b) Equity
c) Cost of Goods Sold
d) Accounts Receivable

Answer 17

c) Cost of Goods Sold

Question 18

What does the term ‘net income’ represent in accounting?

a) Total revenue minus total expenses
b) Total assets minus total liabilities
c) Total revenue minus total liabilities
d) Total expenses minus total assets

Answer 18

a) Total revenue minus total expenses - often referred to as Net Profit.

Question 19

What do expenses represent in accounting?

a) Financial losses of the business
b) Revenue generated by the business
c) Assets owned by the business
d) Costs incurred by the business

Answer 19

d) Costs incurred by the business - leading to an increase in Net Profit and therefore Owners Equity.

Question 20

Which of the following represents an example of an intangible asset?

a) Inventory
b) Accounts payable
c) Building
d) Goodwill

Answer 20

d) Goodwill

Goodwill is an intangible asset that accounts for the excess purchase price of another company. Items included in goodwill are items such as intellectual property and brand recognition, which are not easily quantifiable.

Question 21

What is the formula for calculating owners equity in accounting?

a) Assets - Liabilities
b) Revenue - Expenses
c) Liabilities - Assets
d) Expenses - Revenue

Answer 21

a) Assets - Liabilities