Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
What is the result of the accounting equation expressed as Capital plus Liabilities minus Assets?
Answer:
0
The fundamental accounting equation states that Assets equal Liabilities plus Capital (Assets = Liabilities + Capital). If you rearrange this equation by subtracting Assets from both sides, the resulting expression is Liabilities + Capital - Assets = 0. This confirms the balance of the accounting equation.
2
According to the fundamental accounting equation, total assets must always be equal to which of the following?
Answer:
Liabilities + Capital
The fundamental accounting equation states that Assets = Liabilities + Equity (Capital). This balance reflects the dual aspect principle, where every asset owned by a business is financed either by creditors (liabilities) or by the owners (capital). Therefore, the sum of liabilities and capital must always equal the total assets of the entity at any given point in time.
3
If a company reports total assets of Rs. 150,000 and owner's equity of Rs. 70,000, what is the total amount of liabilities?
Answer:
Rs. 80,000
According to the fundamental accounting equation, Assets = Liabilities + Equity. By rearranging the formula to Liabilities = Assets - Equity, we calculate Rs. 150,000 - Rs. 70,000, which equals Rs. 80,000. This ensures the balance sheet remains balanced.
4
Which of the following correctly expresses the standard accounting equation?
Answer:
Assets =Capital + liabilities
The accounting equation is defined as Assets = Capital + Liabilities. This represents the dual aspect principle, where the total value of assets held by a business must equal the total sources of funding, which are the owner's equity (capital) and external obligations (liabilities).
5
How does the purchase of supplies using cash affect the accounting equation?
Answer:
Have no effect on total assets
Purchasing supplies for cash is an asset exchange transaction. Cash (an asset) decreases, while Supplies (another asset) increases by the same amount. Since one asset increases and another decreases by the same value, the total assets remain unchanged, and there is no impact on liabilities or owner's equity.
6
When a sole trader secures a $10,000 bank loan, which components of the accounting equation are affected?
Answer:
Assets and liabilities
The accounting equation is Assets = Liabilities + Equity. When a business borrows cash, the cash (an asset) increases, and the loan payable (a liability) also increases by the same amount. This transaction maintains the balance of the equation without affecting the owner's equity or capital, as the increase in assets is offset by an equal increase in liabilities.
7
If total assets increase by $20,000 and total liabilities increase by $12,000, what is the resulting change in capital?
Answer:
Increase by $8,000
Based on the accounting equation (Assets = Liabilities + Capital), any change in assets must be balanced by changes in liabilities and capital. If assets increase by $20,000 and liabilities increase by $12,000, capital must increase by the difference: $20,000 - $12,000 = $8,000.
8
What is the standard formula for the basic accounting equation?
Answer:
Assets=Capital+Liabilities
The basic accounting equation, which serves as the foundation for the double-entry bookkeeping system, states that a company's total assets must always equal the sum of its liabilities and owner's equity (capital). This ensures that every transaction is recorded in a balanced manner.
9
When a business receives cash from a debtor, which two accounts are primarily affected?
Answer:
Cash and debtors
The receipt of cash from a debtor increases the cash asset account and simultaneously decreases the accounts receivable (debtors) asset account. This transaction represents the settlement of an outstanding balance, maintaining the accounting equation balance by shifting value between two asset categories.
10
What is the fundamental equation used in accounting?
Answer:
Capital + Liabilities = assets
The fundamental accounting equation, often referred to as the balance sheet equation, states that Assets = Liabilities + Owner's Equity (Capital). This equation serves as the basis for the double-entry bookkeeping system, ensuring that the total value of all assets owned by a business is always balanced by the claims against those assets by creditors and owners.