Accounting -Compute the Accounting Equation and all of its main components. -Exp

Question

Accounting

-Compute the Accounting Equation and all of its main components.

-Explain the Basic Accounts and name the "verbs" for each type of account.

-Explain the Debit/Credit Rules and Normal Balance for Assets, Liabilities, and Owners' Equity Accounts.

-Identify how accounts increase and decrease in value.

-Explain the difference between "accrual basis" vs "cash basis" accounting methods.

-Explain the adjusting entry account relationships for the following adjusting entries: accounts receivable(arrcued revenues), accounts payabe(accrued liabilities), prepaid expense, and unearned service revenue.

-List the closing entries for closing revenues, expenses, dividends, and the Income Summary Account.

-Explain the Temporary and Permanent accounts.

-Explain the difference between the Trial Balance, the Adjusted Trial Balance, and the Post-Closing Trial Balance.

-Explain the effect of mistakes(errors) on the Trial Balance.

-Explain the purpose for liquidity, profitability, and solvency ratios, and how to analyze ratio results.

-Explain how to compute Working Capital, Current Ratio, Debt to Assts Ratio, Free Cash Flow, Earnings per Share.

Explanation / Answer

Answer(1): Accounting Equation:

Assets = Liabilities + Shareholder's Equity

Assets = These are the valuable things that represent the ownership of the company and can be converted into cash.

Example: Machinery, Building, Cash, Marketable securities etc.

Liabilities = These are the obligation, that company has to repay.

Example: Loan, Accounts payable etc.

Shareholder's Equity = It is the share capital and retained earnings of the company that does not include treasury shares.

Answer(3): Debit Credit Rules: Are as following-

Personal Account- Debit the receiver and credit the giver

Real Account- Debit what comes in, credit what goes out.

Nominal Account- Debit the the expenses and credit the Income.

Answer(8):  Temporary and Permanent accounts-

Temporary accounts are the accounts of revenue, expenses and drawing accounts, these are also called Nominal accounts, their balances are not carried over to the next accounting year and these accounts are closed out. Permanent accounts are assets, liabilities and equity accounts that can be seen in balance sheet. These are also called Real account whose balances are carried over to the next year.

Answer(10): The purpose for liquidity, profitability, and solvency ratios- These ratios tell how much company is liquid and profitable, these ratios help investors to take investing decision in the particular company and also help creditors to lend loan to the company because with the help of these ratios, company's financial position can be known.

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