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Financial Accounting Module 1 Exam Questions and Complete Solutions Graded A+
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Financial Accounting Module 1 Exam Questions and Complete Solutions Graded A+
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Financial AccountingModule 1 Exam
Questions and Complete
Solutions Graded A+
Denning [Date] [Course title]
, What is the financial accounting equation? - Answer: Assets=Liabilities+Owner's Equity
When you make an equity investment, how does it impact the equation? - Answer: It increases owner's
equity and assets.
When you take out a loan, how does it impact the equation? - Answer: Assets increase because the
loan provides the business with more cash. Liabilities also increase because the business now has the
obligation to pay back the loan at some point in the future.
When you buy equipment or inventory, how does it impact the equation? - Answer: Equipment: Assets
increase because the shelving (an asset) is recorded, but assets also decrease because their cash was
reduced.
Inventory: The inventory asset increases by the amount of the purchase. Assets also decrease you paid
cash to the supplier.
How do revenue and expenses impact the financial accounting equation? - Answer: Revenue: Cash, an
asset, increases and the owners' equity also increase by the same amount as it is revenue.
Expense (example): The cost of the hot chocolate that was purchased would have been previously
recorded in the inventory account. When the hot chocolate was sold, an asset (inventory) would have
decreased by the cost of the hot chocolate. The reduction in assets is an expense related to the sale of
the hot chocolate and expenses decrease owners' equity.
How does buying on credit impact the equation - before its paid and after its paid (Example)?
Example: Suppose Cardullo's purchased four 24-unit cases of Nutella for a total of $500. The business
bought the Nutella on credit, and they will not pay until 30 days later. - Answer: At the time of
purchase, it increases assets (you now have more cash or inventory) & liability (you're obligated to play).
When it's time to pay: Your liabilities (no longer obligated to the vendor) and assets decrease (you pay
cash)
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