17.5.4. Key Principles

Try these first

1. 1.

   What do you understand by the term 'Assets'?

   Hint

   Think about what a company owns.

2. 2.

   Can you explain what 'Liabilities' are?

   Hint

   Consider what a company must pay back.

3. 3.

   What is the fundamental accounting equation?

   • Assets + Liabilities = Capital
   • Assets = Liabilities + Capital
   • Liabilities = Assets - Capital

   Hint

   Remember, assets must balance with debts and owner's equity.

4. 4.

   True or False: The Going Concern principle assumes a business will close down in the near future.

   • True
   • False

   Hint

   Think about what this principle implies for reporting.

5. 5.

   A company has total assets of $500,000, liabilities of$300,000, and capital of $200,000. Using the accounting equation, assess whether the accounts balance.

   Hint

   Check if $500,000 equals the sum of the other two values!

6. 6.

   If a business reports income of $100,000 with expenses of$60,000, how does the Matching principle apply to this scenario?

   Hint

   Think about how income and expenses relate to each other.