Tag: usefulness of an 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

The accounting equation is based on _________________.

  1. Going concern concept

  2. Dual aspect concept

  3. Money measurement concept

  4. Materiality concept
Reveal answer Fill a bubble to check yourself
B 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

A business entity has assets of $Rs. 2,60,000$ and liabilities of $Rs. 60,000$. Owner's equity in this case is__________. 

  1. $Rs. 3,20,000$

  2. $Rs. 2,60,000$

  3. $Rs. 2,00,000$

  4. $Rs. 60,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Owner's equity = Assets - Liabilities. 2,60,000 - 60,000 = 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

If outside liabilities and owners equity are added we get ______________.

  1. Total Liabilities

  2. Net worth

  3. Shareholders Fund

  4. Gross Block
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The total of outside liabilities and owner's equity represents the total claims against the assets of the business, which is defined as total liabilities (or total equities).

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

An increase in one liability may lead to _________________.

  1. Increase in another asset

  2. Decrease in liability

  3. Both (A) and (B)

  4. Either (A) or (B)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

An increase in one liability can be balanced by a decrease in another liability (e.g., paying off a creditor with a bank loan) or an increase in an asset (e.g., taking a loan to buy equipment).

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

Capital is the difference between.

  1. Income and expenses

  2. Sales and Cost of goods sold

  3. Assets and liabilites

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Capital represents the owner's claim on the business assets. It is calculated as Total Assets minus Total Outside 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

If assets are increased by 2,000 and liabilities are increased by 1,200. What will be the effect on business equity?

  1. 800

  2. 2,000

  3. 3,200

  4. 1,200.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows:
Assets = Liabilities + Equity ( Capital)
Equity = Assets - Liabilities
            = 2,000 - 1,200 
            = 800.

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

Sriram purchased a furniture for Rs. 6,000, the accounts affected from this transaction will be _________________.

  1. Capital account and cash account

  2. Furniture account and cash account

  3. Furniture account and capital account

  4. Capital account and bank account.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Purchasing furniture for cash involves an increase in the Furniture account (asset) and a decrease in the Cash account (asset).

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

Listed in random order are the balance sheet figures of Mr. Q as at 31st March, 2015.

Trade receivables Rs. $50,000$
Trade payables Rs. $30,000$
Building Rs. $90,000$
Capital Rs. $1,00,000$
Bank loan Rs. $40,000$
Inventories Rs. $10,000$
Cash Rs. $20,000$
Reserves Rs. $50,000$
Intangible assets Rs. $30,000$
Shares Rs. $20,000$
Equipment Rs. $40,000$
Retained earnings        Rs. $40,000$


Determine the owner's equity?

  1. Rs. $2,10,000$

  2. Rs. $1,90,000$

  3. Rs. $1,20,000$

  4. Rs. $1,70,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Owner's equity is the sum of Capital, Reserves, and Retained Earnings. 1,00,000 + 50,000 + 40,000 = 1,90,000.

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 accounting equation is correct?

  1. Capital (Rs. $15,000$)$=$Fixed Assets(Rs. $12,000$) $+$ Cash ($4,000$)

  2. Trade Payable (Rs. $3,000$) $+$ Capital (Rs. $17,000$) $+$ Bills Payable (Rs. $4,000$) $=$Fixed Assets (Rs. $20,000$)

  3. Capital (Rs. $15,000$) $=$Cash ($3,000$) $+$ Fixed Assets (Rs. $9,000$)

  4. Trade Payable (Rs. $8,000$) $+$ Capital (Rs. $7,000$) $=$Fixed Assets (Rs. $8,000$)$+$ Cash at bank (Rs. $4,000$)$+$Cash (Rs. $3,000$)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accounting Equation :- Total Assets = Capital+ Liabilities 

                                    = 15000 = 15000
Option D is Correct

Multiple choice elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

Absorption means __________.

  1. charging overheads to cost centres

  2. charging of overheads to cost units

  3. charging of overheads to cost centres or cost units

  4. allotment of overheads to different departments
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to Terminology of Cost Accountancy overhead absorption is defined as “the charging overheads to cost units by means of rates separately calculated for each cost centre. In most cases the rates are pre-determined”.