URDANETA CITY UNIVERSITY

SAN VICENTE WEST , URDANETA CITY. V033

Chapter Review No.2

1. What are assets? explain
- An asset is a resource with economic value that an individual, corporation, or country owns or
controls with the expectation that it will provide a future benefit.Assets are reported on a
company's balance sheet. They're classified as current, fixed, financial, and intangible. They are
bought or created to increase a firm's value or benefit the firm's operations.An asset can be
thought of as something that, in the future, can generate cash flow, reduce expenses, or
improve sales, regardless of whether it's manufacturing equipment or a patent.

2. What are equities? explain the two sources

- The two sources of equity are owners and investors , Owners the founder members of
a business may offer their own capital to acquire the company’s stock.Investors:these
are outsiders or individuals who provide investments for either a startup or a fully
established firm to maintain their business operations or equity

3. Explain what proprientorship is.

- A sole proprietorship is a business that can be owned and controlled by an individual, a
company or a limited liability partnership. There are no partners in the business.A sole
proprietorship is an unincorporated business with only one owner who pays personal
income tax on profits earned.

4. What is the basic accounting equation?

- The fundamental accounting equation, also called the balance sheet equation,
represents the relationship between the assets, liabilities, and owner's equity of a
person or business. It is the foundation for the double-entry bookkeeping system. For
each transaction, the total debits equal the total credits.The accounting equation states
that a company's total assets are equal to the sum of its liabilities and its shareholders'
equity. This straightforward relationship between assets, liabilities, and equity is
considered to be the foundation of the double-entry accounting system.
5. What is the expanded accounting equation?
- The expanded accounting equation reveals all of the components of the shareholders'
equity part of the accounting equation. The expanded equation is: Assets = Liabilities +
(Paid in Capital - Dividends - Treasury Stock + Revenue - Expenses). The expanded
accounting equation is a form of the basic accounting equation that includes the
distinct components of owner's equity, such as dividends, shareholder capital, revenue,
and expenses. The expanded equation is used to compare a company's assets with
greater granularity than provided by the basic equation.