1a. State the accounting equation and briefly explain it.

1b. Mr Jones started his business with his savings of $10,000 and a loan from the
bank. He bought the following items:

Computers: $5,000

Furniture: $7,000

Supplies: $3,000

After these purchases he had $6,000 cash at hand. How Much loan did he get from
the bank? Please use the accounting equation and show your calculations.

Answer:

The financial position of a company is measured by the following items:

1. Assets (what it owns)

2. Liabilities (what it owes to others)
3. Owner's Equity (the difference between assets and liabilities)
The accounting equation offers a simple way to understand how these three
amounts relate to each other.
Assets = Liabilities + Owner's Equity

In the given problem Jones has savings of $10000

Computers cost: $5000

Furniture cost: $7000

Supplies: $3000

Total Assets is the sum of above amounts + Cash at hand after the purchases =
$6000

So Total Assets = $21000

Owners Equity = $10000

Now Assets = Liabilities + Owners Equity.

Weve to calculate the amount of loan Jones borrowed from bank which is a
LIABILITY

Liabilities = Assets Owners Equity

 = $21000 - $10000

= $11000

Amount borrowed from bank = $11000

2a. What is an income statement? What are the components of an income

statement.

2b. The information below is from the books of ABC Logistics Services for the year
ended December 31, 2015.

Fees: N50,000

Transport expenses: $3,000

Lodging expenses: $2,000

Salaries: $18,000

Miscellaneous expenses: 4,000

Using this information, prepare the income statement of the company (include
appropriate headers, the correct layout and good formatting)

Answer:

The income statement represents the revenue and expenses of a company for a
period of time based on matching concept.The income statement consists of
revenues and expenses along with the resulting net income or loss over a period of
time due to earning activities

2b INCOME STATEMENT

Fees Earned $50,000

Expenses
Transport Expenses $3,000
Lodging
Expenses $2,000
Salaries $18,000
Misc Expenses $4,000

Total
Expenses $27,000
Net Income $23,000

3a. What is a balance sheet? What are the components of a balance sheet?

3b. The information below is from the books of Quest Consulting.

Cash at bank: $20,000

Loans outstanding: $50,000

Land: N75,000

Equipment: $15,000

Accounts payable: $10,000

Accounts receivable: $30,000

Owners Equity: $80,000

Prepare the balance sheet (include appropriate headers, the correct layout and
good formatting)

Answer:

Balance sheet is a statement of the assets, liabilities, and owner's equity of a

business organization at a particular point in time

Assets are things that the company owns. e.g.Cash,Temporary

Investments,Accounts Receivable,Inventory etc

Liabilities are the debts owed by a business, often incurred to fund its operation.
e.g. Accounts Payable,Salaries Payable,Interest Payable

Owner's Equity is the residual interest in the assets of the company after
deducting all its liabilities.

3b.BALANCE SHEET FOR GIVEN QUESTION

 Assets Liabilities

Accounts
Cash $20,000 Payable $10,000
Loans
Land $75,000 Outstanding $50,000
Equipment $15,000
Accounts Owner's
Receivable $30,000 Equity
Owner's
Equity $80,000

Total Liabilities
& Owner's
Total Assets $140,000 Equity $140,000

4a. What is a cash flow statement?

Cash flow statement is a summary of the actual or anticipated inflow and outflows
of cash in an organization over an accounting period

4b. Mention and explain the components of a cash flow statement

Cash Flow from Operating Activities

The net amount of cash coming in or leaving from the day to day business
operations

Cash Flow From Investing Activities include the outflow of cash for long term
assets such as land, buildings, equipment, etc., and the inflows from the sale of
assets, businesses, securities, etc

Cash Flow From Finance Activities is the cash out flow to the entities investors

4c. Explain financial accounting and managerial accounting

Financial accounting is used to present the financial health of an organization to its

external stakeholders. Board of directors, stockholders, financial institutions and
other investors are the audience for financial accounting reports
Management or managerial accounting is used by managers to make decisions
concerning the day-to-day operations of a business.

4d. What are the two factors that lead to failure in business ethics.

OPPURTUNITY: Accounting sometimes involves dealing with very large amounts of

money, some of which can be easily hidden, siphoned off or removed with little
chance of detection

IGNORANCE: Tax law, regulations about insider trading and similar arcane rule
books are easily misunderstood, and inexperienced accountants or businesspeople
may engage in unethical behavior without even being aware of it