Activity 1
Define owner's equity.
2 Define liability.
3 Explain why ´owner'sequity isa liability."
4 Complete the following table:
Assets Liabilities Owner's equity
7000 5000
*** *********
b 1350 2450
2670 500
d 8000 3780
e 1900 4100
Activity 2
Copy and complete the following table with the words 'decreases' or 'increases' to show
which effect each transaction would have on the assets, liabilities and owner's equity of
a business:
Transactions Assets
****e*******
Liabilities
***
Owner's equity
**************s*******....
The owner introduced $45000 cash into
the business bank account.
b The business bought goods on credit from
Sully & Sons.
C Benjamin, a friend of the owner, lent the
business $3000 in cash.
d The business sold goods for cash $500.
********************************************
The business paid Benjamin $3 000 by
Cheque.
:f The business returned goods $50 to Sully
& Sons.
The owner withdrew $400 from the
business bank account for personal use.
The business bought a motor vehicle
P.....*.***********
$4500, paying by cheque.
The business paid a creditor $58 cash.
***********************************************************************
Activity 3
State how each item would be classified as an asset or liability.
a Buildings and property
b Machinery
c Trade receivables
d Trade payables
e Overdraft
f Cash in hand
g Loan from M. Apple (a friend)
h Inventory
Motor vehicle
Equipment
Exam-style questions
The following multiple choice questions should be completed within five
minutes. Four possible answers are given for each question and you must choose
the one most appropriate answer.
1 What is the accounting equation?
A Assets + Liabilities = Owner's equity
BAssets + Owner's equity = Liabilities
C Assets - Liabilities = Owner's equity
D Assets = Liabilities - Owner's equity [1]
2 Which definition is not correct?
A A liability is what a business owns.
B An asset is a resource that a business owns.
COwners equity is what the business owes the owner.
D The accounting equation is reflected in the statement of financial
position. [1]
3A business had the following assets and liabilities on 6 June 2016:
Motor vehicle $5900; bank loan $6000; cash at bank $49000; trade payables
$800; inventory $2 100; premises $30000.
What was the value of owner's equity?
A $80 200
B $81200
C $81800
D$92200 [1]
4 Which statement is correct?
AResources owned by the business = Resources supplied to the business
B Resources owned by the business = Resources owed to the business
CResources owned by the business =Resources supplied by the business
D What the business supplies = What the business owes [1]
5 Which statement is correct?
AWhen the owner deposits money into the business bank accounts,
it is called drawings.
B When the owner pays a business expense from personal funds, it is called
drawings.
CWhen the owner supplies a motor vehicle to the business, it is called drawings.
DWhen the owner withdrawS money from the business bank account, it is
called drawings. [1]
The mark allotted to the structured question below is a guide to the length of
time that should be taken to complete it.
6 Aimee's Frocks has completed its first year of trading which ended on
31 August 2018. Using the information below:
a calculate the owner's equity at 31 August 2018 [3]
b prepare Aimees Frocks' statement of financial position as at
31 August 2018. [5]
Machinery 15000
Inventory 10000
Trade receivable 5000
Trade payable 2400
Cash at bank 29 000
Premises 100 000
? Chapter review questions
1 Simran's accountant prepared astatement of financial position at the end of her
first year of trading on 31 December 2018. Simran was not familiar with some of the
terms used in this statement.
State the meaning of each of the following terms:
a Drawings
b Assets
c Trade payables
d Current liabilities
e Non-current assets.
2 Copy and complete the following sentences, choosing from the words below:
fixed; equation; accounting; drawings; current liability; capital
a Owner's equity is also known as
b The statement of financial position reflects the
c When the owner withdraws cash from the business bank account for personal
use, it is called
d Non-Current assets are also known as. assets.
e Trade payables is an example of a
3 Explain why owner's equity is atype of liability.
4 The following statements refer to the effect of transactions on the assets, liabilities
and owner's equity in an accounting equation. Copy and complete the following table
by entering 'true' or 'false' for each statement.
Statement True/False
If an asset increases, then either a liability or owner's equity will
also increase.
If an asset increases, then another asset involved in the
transaction will also increase.
**************************************************e*****
If an asset decreases, then either a liability or owner's equity will
also decrease.
If a liability or owner's equity increases, then another liability
involved in the transaction will increase.
*****e***
Ifa liability or owner's equity decreases, then another liability
involved in the transaction will increase.
*******s*************************e*******s*********************************
5 Copy and complete the table below and place a tick (/] against those items which are
correctly classified:
Assets
*******..
Liabilities
...........
Furniture and fixtures Trade payables
******************************************
......********
************
acninery Equipment
Bank loan
******
Inventory
Overdraft Trade
.....
receivables
Property and buildings
***************
Cash in hand
6 Lazarus Trading started business on 1January 2018. The transactions shown below
took place in the first week.
Calculate Lazarus' (owner'sl] equity after all these transactions have taken place. You
are not required to prepare a statement of financial position after each transaction.
Jan 1 Lazarus deposited $45000 into the business bank account.
Jan 2 Lazarus bought a motor vehicle costing $6 000 on credit from James Motors.
Jan 3 Lazarus borrowed $3 500 cash from Jennings.
Jan 5 Lazarus bought goods worth $2300 from his suppliers, paying by cheque.
Jan 6 Lazarus paid Jennings cash $2 000 in part settlement of his debt.
Jan 7 Lazarus withdrew $3000 from the business bank account for his personal use.
