Accounting Concepts and Procedures ANSWERS TO DISCUSSION QUESTIONS AND CRITICAL THINKING/ETHICAL CASE 1. The functions of accounting are to analyze, record, classify, summarize, report, and interpret financial information. 2. Sole proprietorship—1 owner; unlimited liability; easy to form; limited life Partnership—2 or more owners; unlimited liability; easy to form; limited life Corporation—Stockholders; limited liability; difficult to form; unlimited life 3. Service, merchandise, or manufacturing 4. Bookkeeping is the recording function of the accounting process. 5. The three elements of the basic accounting equation are assets, liabilities, owner's equity. 6. Capital is the owner's current investment or equity in the assets of a business. It is one subdivision of owner's equity. 7. True. The sum of the left side of the equation (assets) must equal the sum of the right side of the equation (liabilities and owner's equity). 8. False. That is the income statement. 9. False. Revenue is a subdivision of owner's equity. 10. Owner's equity is subdivided into Capital, Withdrawals, Revenue, and Expenses. 11. False. It is non-business expense; a subdivision of owner's equity. 12. False. As expenses increase, owner's equity decreases. 13. Revenue less Expenses; an income statement shows performance. 14. False. It calculates ending capital. 15. The question in this case is whether Paul should be allowed to "pad" his expense account with an additional $100 of expenses. I feel that Paul should only be allowed to expense those items that are business related. Paul's argument that he is entitled to an additional $100 is not a valid assumption. However, he should be allocated money for any business expenses during the weekend.