Accounting Equation 2 Essay

611 Words Sep 25th, 2010 3 Pages
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 …show more content…
Internal-Which product should we emphasize?
External-Will the company be able to pay its short-term debts?
E1-3 Larry Smith, president of Smith Company, has instructed Ron Rivera, the head of the
Accounting department for Smith Company, to report the company’s land in the company’s accounting
Reports at its market value of $170,000 instead of its cost of $100,000. Smith says,
“Showing the land at $170,000 will make our company look like a better investment when we try to attract new investors next month.”
The Ethical situation of this scenario is that according to the Generally Accepted Accounting Principles {GAAP}, the cost principle of a company will not change. So because the cost of the company land was only $100k, if the company then changes their cost to $170k it would be against the {GAAP.}

E1-4 The following situations involve accounting principles and assumptions.

1. Grossman Company owns buildings that are worth substantially more than they originally cost. In an effort to provide more relevant information, Grossman reports the buildings at market value in its accounting reports.

This is incorrect, because the cost principal has been violated

2. Jones Company includes in its accounting records only transaction data that can be expressed in terms of money.

This is correct. The accounting records only show the monetary unit assumption.
3. Caleb Borke, president of Caleb’s Cantina, records his personal living costs

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