Chapter 2, Problem 2QS

To determine

Asset:

It refers to all valuable items that a company owns or items that generate some income to the company whether tangible or intangible. The more assets a company owns, the stable its financial position would be.

Accounting rule for assets is,

• Increase in assets is always debited
• Decrease in assets is always credited.

Liability: It refers to all items that have some monetary value in market and that company owes from others. The liability is much important for a company for financial support.

Accounting rule for liabilities is,

• Increase in liabilities is always credited.
• Decrease in assets is always credited.

Equity: It refers to the contribution that an owner makes to the company. The more equity the company has, the more profitable the company would be.

Accounting rule for equity is,

• Increase in Equity is always credited.
• Decrease in equity is always debited.

To classify: Items into asset (A) account, liability (L) account and equity (EQ) account.