Book 1 - Chapter 4

4-2.

Item		A, L, or OE
a. Money owed to a supplier		L
b. Cash		A
c. Office supplies		A
d. Money owed to the bank for a loan		L
e. The amount of assets that would go to the owner after the all creditors are paid		OE
f. A signed contract requiring us to provide services next month		None (perhaps some undetermined legal obligation, but no financial liability to creditor.)
g. A computer		A
h. Computer software		A
i. A bill from the telephone company for this month’s service		L
j. Land		A
k. An employee		None (It doesn’t meet the definition of asset.)
l. An office building our company is renting		None (Somebody else owns the building.)
m. Money owed to us by our customers		A

LG 4-3. Any business consists of three fundamental financial elements: Assets, Liabilities, and
Owner’s Equity. They are always related to each other in this way: A = L + OE, so this relationship
will always explain the essential financial condition of any business.

LG 4-4. This feature is sometimes written into business loans. If $80,000 is the only debt, then
$80,000 is 40% of what amount? $80,000 /.4 = $200,000 amount of assets. So if the assets were
$200,000 and the liabilities were $80,000, then owner’s equity would be $120,000.

Learning Goal 4, continued

SOLUTIONS

Section I · What Is a Business?

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