Accounting Equation 2

Topics: Balance sheet, Asset, Economics Pages: 3 (605 words) Published: October 10, 2010
There are three elements of the Accounting Equation; Assets, Liabilities and Owners Equity. The Assets of a company are things that are owned by a business; such as cash, property and equipment that is used to run the business. Liabilities are the financial obligations of a company. For example: When you operate a business, and you have employees, you will be responsible for payroll taxes that must be paid on that employee. Liabilities are not just loans; a liability has an assigned monetary value and the company is responsible for repayment of that amount in some way. The amounts of assets that are left over after taking care of the company’s liabilities are defined as Owners Equity. If the business is incorporated, the company can sell stock to individuals {shareholders} in exchange for ownership of the company.

E1-1 Urlacher Company performs the following accounting tasks during the year. Communicates-Analyzing and interpreting information.
Identifies-Classifying economic events.
Communicates-Explaining uses, meaning, and limitations of data. Records-Keeping a systematic chronological diary of events.
Records-Measuring events in dollars and cents.
Communicates-Preparing accounting reports.
Recording-Reporting information in a standard format.
Identify-Selecting economic activities relevant to the company. Communicates-Summarizing economic events.

E1-2 (a) The following are users of financial statements.

External-Customers External-Securities and Exchange Commission External-Internal Revenue Service Internal- Store manager External-Labor unions External-Suppliers
Internal-Marketing manager Internal-Vice-president of finance Internal-Production supervisor

(b) The following questions could be asked by an internal user or an external user. Internal-Can we afford to give our employees a pay raise?
External-Did the company earn a satisfactory income?
Internal-Do we need to borrow in the near future?
External-How does...
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