The Fundamental Accounting Equation

The Lesson Activities will help you meet these educational goals:

  • Content Knowledge—You will apply the fundamental accounting equation to various types of firms.
  • 21st Century Skills—You will use critical thinking and problem solving skills and communicate effectively.

Directions

You will evaluate these activities yourself. Please save this document before beginning the lesson and keep the document open for reference during the lesson. Type your answers directly in this document for all activities.

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Self-CheckedActivities

Read the instructions for the following activities and type in your responses. Use the answers or sample responses to evaluate your own work.

  1. Different Components of Accounting

What are the three components of a basic accounting equation? Should a basic accounting formula balance at all times? If yes, explain the reason. If it does not balance, what does it signify?

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Nailed It!—Iincludedall of the same ideas as the model response on the Student Answer Sheet.

Halfway There—I included most of the ideas in the model response on the Student Answer Sheet.

Not Great—I did not include any of the ideas in the model response on the Student Answer Sheet.

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  1. Effects of Transactions on the Accounting Equation

Explain how the following transactions affect the accounting equation:

  1. Assets purchased on credit
  2. Rent paid in cash
  3. Office furniture purchased for cash
  4. Inventory bought on credit

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Nailed It!—Iincludedall of the same ideas as the model response on the Student Answer Sheet.

Halfway There—I included most of the ideas in the model response on the Student Answer Sheet.

Not Great—I did not include any of the ideas in the model response on the Student Answer Sheet.

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  1. Stock and Flow Variables

What are stock and flow variables? Classify the following as stock/flow variables:

grocery store inventory, grocery sales, shareholders' wealth, shareholders' income, cash in hand, and income from employment.Justify each classification.

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  1. Types of Business Ownerships

Discuss the pros and cons associated with different types of business ownership.

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  1. Sources of Finance for a Sole Proprietorship

As a sole proprietor, what are the ways in which you can raise moneyto establish your business, and make it grow?

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Nailed It!—Iincludedall of the same ideas as the model response on the Student Answer Sheet.

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  1. Sources of Finance for a Private Company

As a private limited firm dealing with garment manufacturing, you have little cash in hand but considerable business potential. You suddenly get an order to deliver 1,000 shirts at a price of $50 each. You have the entire infrastructure in place, but need $15,000 to procure the fabric and accessories for shirts. How will you raise moneyto serve this order? How will the answer differ if the business isa sole proprietorship?

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Nailed It!—Iincludedall of the same ideas as the model response on the Student Answer Sheet.

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  1. Types of Shares

Explain the difference between equity and preference shares with respect to the following:

  1. Voting rights
  2. Dividend payout

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How did you do? Check a box below.

Nailed It!—Iincludedall of the same ideas as the model response on the Student Answer Sheet.

Halfway There—I included most of the ideas in the model response on the Student Answer Sheet.

Not Great—I did not include any of the ideas in the model response on the Student Answer Sheet.

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