Tag: accounting equation

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Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Which of the following is accounting equation?

  1. Capital = Assets + Liabilities

  2. Capital = Assets - Liabilities

  3. Assets = Liabilities - Capital

  4. Liabilities = Assets + Capital
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The basic accounting equation, also called as the balance sheet equation, represents the relationship between the assets, liabilities and capital of a business. It is the foundation for the double entry book-keeping system. For each transaction, the total debit equals the total credit. Following is the accounting equation:

Asset = Liability + Capital.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

The accounting equation is based on __________.

  1. Going concern concept

  2. Dual aspect concept

  3. Money measurement concept

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dual aspect concept is the basic concept of accounting, According to which every business transactions has a dual effect. As the name implies , the entry made for each transaction is composed of two parts- one for the debit and the other for the credit. Every debit has an equal amount of credit. So, the total of all debits equal to the total of all credits. This gives basic accounting equation:

Assets = Liabilities + Capital.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

The outside liabilities of a business are Rs. $20,000$. The proprietor's capital is Rs. $50,000$. Total assets of the firm are worth ___________.

  1. Rs. $50,000$

  2. Rs. $30,000$

  3. Rs. $70,000$

  4. Rs. $20,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The accounting equation is Assets = Capital + Liabilities. Here, Assets = 50,000 (Capital) + 20,000 (Liabilities) = 70,000.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Dual aspect concept results in the accounting equation _____________.

  1. Capital + Liabilities = Assets

  2. Revenue = Expenses

  3. Capital + Profit = Assets + Expenses

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places.

The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows :

Assets = Liabilities + Capital

In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital(owners’ equity) and that of outsiders, as Liabilities(creditors equity).

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

On 31st Dec. 2006 assets of the business are Rs.3,00,000 and its capital is Rs.1,00,000. Its liabilities on that date will be __________.

  1. Rs. $4,00,000$

  2. Rs. $2,00,000$

  3. Rs. $1,00,000$

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Using the accounting equation Assets = Capital + Liabilities, we have 3,00,000 = 1,00,000 + Liabilities. Therefore, Liabilities = 3,00,000 - 1,00,000 = 2,00,000.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Net worth of the business means _________________.

  1. Total assets minus depreciation

  2. Including expensene and debts.

  3. Total assets minus total outside liabilities

  4. Fixed assets minus current assets
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Net worth (or owner's equity) represents the residual interest in the assets of the entity after deducting all its liabilities.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Suppose P start a business with $Rs. 50,000$ cash and then buys furniture from F.F. Co. on credit for $Rs. 2,000$. Now, the accounting equation
$Assets = Capital + Liabilities$ will be __________________.

  1. $52,000 = 50,000 + 2,000$

  2. $50,000 = 50,000 + 0$

  3. $50,000 = 48,000 + 2,000$

  4. $48,000 = 50,000 - 2,000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Initially, Assets (50,000) = Capital (50,000). After buying furniture on credit, Assets increase by 2,000 (furniture) and Liabilities increase by 2,000. The new equation is 52,000 = 50,000 + 2,000.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Which of the following equations is correct?

  1. Gross Profit $+$ Sales $+$ Direct expenses $+$ Purchases $+$ Closing stock $=$ Opening stock

  2. Gross Profit $+$ Sales $+$Direct expenses $+$ Purchases $=$ Opening Stock

  3. Gross Profit $+$ Opening Stock $+$ Direct expenses $+$ Purchases $-$ Closing stock $=$ Sales

  4. Gross Profit $-$ Opening Stock $+$ Direct expenses $+$ Purchases $+$ Closing stock $=$ Sales
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The cost of goods sold formula is Opening Stock + Purchases + Direct Expenses - Closing Stock = Cost of Goods Sold. Since Sales = Cost of Goods Sold + Gross Profit, the equation becomes Gross Profit + Opening Stock + Direct Expenses + Purchases - Closing Stock = Sales.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Both assets and owner's equity (i.e. capital) would be increased by ___________.

  1. Proprietor's withdrawals

  2. Sale of good on credit

  3. Purchasing a machinery on credit

  4. Retained earnings
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When Owner is retaining earnings , it will  increase owners equity along with the cash or bank balance. 

Hence, option D is correct.

Multiple choice elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

X started business with a capital of $Rs. 2,00,000$ and purchased goods worth $Rs. 20,000$ on credit. These transactions may be expressed in the form of 'Accounting Equation' such as___________. 

  1. $Rs. 2,20,000 = Rs. 2,00,000 + Rs. 20,000$

  2. $Rs. 2,20,000 = Rs. 2,00,000 - Rs. 20,000$

  3. $Rs. 20,000 = Rs. 2,00,000 - Rs. 2,00,000$

  4. $Rs. 2,20,000 = 0 + Rs. 2,20,000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Starting capital is 2,00,000. Purchasing goods on credit increases assets (stock) by 20,000 and increases liabilities (creditors) by 20,000. Total assets = 2,20,000; Capital = 2,00,000; Liabilities = 20,000. Thus, 2,20,000 = 2,00,000 + 20,000.