The Three Elements Of The Accounting Equation

611 Words 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 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.
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External-Did the company earn a satisfactory income?
Internal-Do we need to borrow in the near future?
External-How does the company’s profitability compare to other companies?
Internal-What does it cost us to manufacture each unit produced?
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

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