Quite several concepts have been operationalized and put to practical application because of an enabling idea, or principle, or another concept.
The accounting equation is one of those. Its requirements were easy, such as keeping it in balance without any more complexity than the arithmetic operations of addition and subtraction. The concept of the normal balance based simply on the location of the elements enabled the creation of rules that guide modern-day accounting.
What seemed to start out as a comparison of two lists morphed into an expression eventually known as the accounting equation. What simply were called resources and claims then became the elements of financial statements with definitive names such as asset, liability, equity, income, and expense. The left and right side of the equation have since been called the debit and credit side, respectively.
Consisting of the elements of financial statements, the accounting equation provides structure to those statements. Like any equation, it observes the rules of arithmetic like adding to or deducting from one side to keep the equation in balance. However, the elements on either side cannot be moved to the opposite side, even if equality is maintained. The fixed position of the elements establishes the normal balance, which has accounting significance in the rules of debit and credit followed in the accounting process.
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For liabilities, to add is to
If an asset increases by $1.00 and liabilities increased by $1.00
Which of the following are essential in the definition of assets?
For liabilities, to deduct is to
If an asset decreased by $1.00 and liabilities increased by $1.00
The values on either side of the accounting equation should not be transposed because
For equity, debiting means
If equity increased by $1.00 and liabilities increased by $1.00
If an asset increases by $1.00 and liabilities decreased by $1.00
When income is debited, it
If equity increased by $1.00 and liabilities decreased by $1.00
Complete this equation: Assets, $50 = Liabilities, $? + Equity $15.
Enter answer here:
When income is credited, it
If equity decreased by $1.00 and liabilities decreased by $1.00
Expense has a normal debit balance because
When expense is debited, it
If equity decreased by $1.00 and liabilities decreased by $2.00
Transactions affect the accounting equation, through increases or decreases in even one element of financial statements, regardless of amount.
When expense is credited, it
When assets decrease or liabilities increase, it is the result of this element of financial statements.
Determines the normal balance of an element of financial statements
Match the following.
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Land was purchased for cash
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A bank loan was paid in cash
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Additional capital provided by owner
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Rental for the office space was paid
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An element of financial statements that involves an obligation to deliver resources embodying future benefits
An element of financial statements that increases the entity’s resources as a result of investment by owners
Match the following items.
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Equipment was purchased on credit
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Loan granted to another company
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Capital is returned to owner
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Collection of rental
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Equity and income both enhance assets. However they are fundamentally different in one of these
Income is described as enhancement of assets or ___________ resulting from non-owner resources.
Match the following items.
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Debit to liability and credit to asset
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Debit to asset and credit to liability
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Debit to asset and credit to equity
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Same element is debited and credited
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When an asset loses its value or future benefit, it becomes a(n)
Assets decreased by $2.00; liabilities decreased by $1.00, and equity increased by $3.00. The equation will be in balance in one of more of these possibilities
Assets increased by $1.00; liabilities decreased by $1.00, and equity decreased by $1.00. The equation will be in balance in one of more of these possibilities
An increase in assets or a reduction of liabilities increases equity
Elements of financial position with normal credit balances
Complete this equation: Assets, $? = Liabilities, $60 + Equity $15.
Enter answer here:
Match the item with the proper element
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Asset
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Expense
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Liability
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Equity
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Income
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Income has a normal credit balance because
Complete this equation: Assets, $100 = Liabilities, $115 + Equity ?
Enter answer here:
What is the effect of income based on its definition?
Match the following items.
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Debit to expense and credit to asset
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Debit to asset and credit to income
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Debit to expense and credit to liability
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Debit to liability and credit to asset
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Consider the following changes in the elements of financial position. How does the financial position at the end of the year compare to that at the beginning of the year?
What is the effect of income based on its definition?
In accounting, debit refers to the
Consider the following changes in the elements of financial position. How is the financial position at the end of the year compared to the beginning of the year?
What are the effects of an expense based on its definition?
In accounting, credit refers to the
Consider the following changes in elements of financial position. How does the financial position at the end of the year compare to that at the beginning of the year?
What are the effects of an expense based on its definition?
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