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  • Financial Accounting and Reporting (FAR) - Part 3

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    Malcolm Holmes
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    The accounting equation states that assets equal liabilities plus equity. The expanded accounting equation adds that assets equal liabilities plus equity plus income minus expenses. Income increases equity and is revenues or gains, while expenses decrease equity and are costs or losses incurred. If income exceeds expenses, profit results, increasing equity, and if expenses exceed income, a loss results, decreasing equity.

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    Financial Accounting and Reporting (FAR) - part 3

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    Financial Accounting and Reporting (FAR) - part 3

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    The accounting equation states that assets equal liabilities plus equity. The expanded accounting equation adds that assets equal liabilities plus equity plus income minus expenses. Income increases equity and is revenues or gains, while expenses decrease equity and are costs or losses incurred. If income exceeds expenses, profit results, increasing equity, and if expenses exceed income, a loss results, decreasing equity.

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    © All Rights Reserved
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    11 views4 pages

    Financial Accounting and Reporting (FAR) - Part 3

    Uploaded by

    Malcolm Holmes
    The accounting equation states that assets equal liabilities plus equity. The expanded accounting equation adds that assets equal liabilities plus equity plus income minus expenses. Income increases equity and is revenues or gains, while expenses decrease equity and are costs or losses incurred. If income exceeds expenses, profit results, increasing equity, and if expenses exceed income, a loss results, decreasing equity.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 4

    CHAPTER 3

    Accounting Equation Income- is increases in economic benefits


    during the period in the form of increases in
    Asset = Liabilities + Equity
    assets or decreases in liabilities, the result in
    Asset- economic resources you control that increases in equity, excluding those relating
    have resulted from past events and can to investments by the business owner.
    provide you with economic benefits.
    Expenses- are decreases in income benefits
    Liabilities- are your present obligations during the period in the form of decreases
    that have resulted from past events and can in assets, or increases in liabilities, that
    require you to give economic resources result in decreases in equity, excluding
    when you are settling them. those relating to distributions to the

    - Claims of creditor on total assets of business owner.

    an entity NOTE:
    - Obligation means a duty or
     If income is greater than expenses,
    responsibility
    the difference is profit.
    a. Legal Obligation- obligation that
     If income is less than expenses, the
    results from a contract, legislation, or
    difference is loss.
    other operation of law
    b. Constructive Obligation- obligation  Profit increase equity

    results from past transaction that A = L + E + Profit


    have created a valid expectation on
     Loss decrease equity
    others that you will accept and
    discharge certain responsibilities. A = L + E – Loss

    Equity- other terms for equity are capital, Squeezing- unknown. In accounting to
    net assets and net worth squeeze means to come up without unknown
    amount in a given formula by performing
    - Residual amount (financial
    simply arithmetic function
    statement)

    Expanded Accounting Equation

    Asset = Liabilities + Equity + Income –


    Expenses
    CHAPTER 3

    Problem 1: True or False 7. True


    8. True
    1. True
    9. True
    2. False
    10. False
    3. False
    4. False Problem 4
    5. False
    1. D
    6. True
    2. D
    7. True
    3. A
    8. False
    4. D
    9. False
    5. D
    10. True
    6. D
    Problem 2: True or False 7. B
    8. A
    1. True
    9. C
    2. True
    10. B
    3. False
    4. True Problem 5
    5. False
    1. 270,000
    6. True
    2. 160,000
    7. True
    3. 1,120,000
    8. True
    4. 610,000
    9. False
    5. 240,000
    10. False
    Problem 6
    Problem 3: True or False
    1. 490,000
    1. True
    2. 720,000
    2. False
    3. 1,060,000
    3. True
    4. 1,060,000
    4. False
    5. 1,030,000
    5. True
    6. True
    CHAPTER 3

    Problem 7

    1. 130,000
    2. 350,000
    3. 360,000
    4. 160,000
    5. 870,000

    Problem 8

    1. 520,000
    2. 470,000
    3. 240,000
    4. 530,000
    5. 1,440,000

    Problem 9

    Asset = Liabilities + Equity


    100
    20
    500 500
    2,000
    (800)
    1,820 500
    CHAPTER 3

    Problem 10 7.

    1. A
    2. C
    3. D
    4. B
    5. D
    6. C
    7. B
    8. C
    9. D
    10. B

    Problem 11

    1. D
    2. D
    3. B
    4. A
    5. B
    6. B
    7. C
    8. C
    9. D
    10. A

    Problem 12

    1. A
    2. B
    3. A
    4. A
    5. C
    6. A

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