21. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.
22. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
23. In order to possess future service potential, an asset must have physical substance.
24. Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.
25. The basic accounting equation states that Assets = Liabilities.
26. Share capital is the total amount paid in by shareholders for shares purchased.
27. The principal source of equity is amounts paid in by shareholders.
28. Expenses are increases in equity that result from operating the business.
29. The two components of equity are retained earnings and share capital.
30. The purchase of an asset on account increases assets and decreases equity.