Week 3 (accounting equations, dr/cr)

Question 1

The accounting equation

Answer 1

Assets + drawings + Expenses = Liabilities + Capital + Income

Question 2

Double entry accounting

Answer 2

Double entry accounting uses the extended accounting equation to ensure that all elements of business are accounted for.

Question 3

Debit and Credit

Answer 3

Increase on the left: Debit
Decrease on the left: Credit

Increase on the right: Credit
Decrease on the right: Debit

Question 4

Financial statements

Answer 4

• Income statement
• Balance sheet
• Statement of changes in equity
• Cash flow statement

Question 5

Income statement

Answer 5

This captures two main elements income and expense

• I,E

Question 6

Statement of changes in equity

Answer 6

Uses the profit, and then capital and drawings

• I, E, C, D

Question 7

Balance Sheet

Answer 7

Uses assets and liabilities and the equity from the statement of changes in equity

• A, D, E, C, L, I

Question 8

Accrual vs Cash accounting

Answer 8

Cash accounting:
- Very basic approach to accounting that records income and expenses as they happen
- A very simple way to record data, but problems arise when cash flow occurs in a different time period to the original transaction

Accrual accounting:
- Records incomes and expenses regardless of whether cash has changed hands or not
- This means income is recognised when earned, regardless of the cash has been recieved