What is the basic accounting equation?
a) Assets = Liabilities + Equity
b) Assets = Revenue – Expenses
c) Assets = Liabilities – Equity
d) Liabilities = Assets + Equity
Which of the following would cause a decrease in owner’s equity?
a) Additional capital investment
b) Generating net profit
c) Withdrawal of cash by the owner
d) Issuing shares
If a company purchases equipment for cash, how does it affect the accounting equation?
a) Increases assets and increases liabilities
b) Decreases assets and increases equity
c) One asset increases, another asset decreases
d) Increases liabilities and decreases equity
Which of the following transactions would increase both assets and liabilities?
a) Owner investing cash into the business
b) Purchasing inventory on credit
c) Paying off a bank loan
d) Depreciation on machinery
If a company earns revenue on credit, what is the impact on the accounting equation?
a) Increase assets and increase equity
b) Increase liabilities and decrease equity
c) Increase assets and decrease liabilities
d) Decrease assets and increase liabilities
What happens when a business repays a loan?
a) Assets increase, liabilities increase
b) Liabilities decrease, equity increases
c) Assets decrease, liabilities decrease
d) Equity increases, assets decrease
Which of the following transactions does NOT affect the accounting equation?
a) Buying equipment for cash
b) Receiving cash for services provided
c) Recording depreciation expense
d) Hiring a new employee
If a company pays rent expense in cash, how does it impact the accounting equation?
a) Assets decrease, equity decreases
b) Liabilities decrease, equity increases
c) Assets increase, liabilities decrease
d) Equity remains unchanged
Which equation represents the expanded accounting equation?
a) Assets = Liabilities + Owner’s Equity + Revenue – Expenses
b) Assets = Liabilities + Owner’s Equity – Revenue + Expenses
c) Liabilities = Assets + Owner’s Equity
d) Assets = Liabilities – Owner’s Equity + Revenue
What effect does issuing shares for cash have on the accounting equation?
a) Assets increase, equity increases
b) Liabilities increase, equity decreases
c) Assets increase, liabilities increase
d) No effect on the equation
If a company collects accounts receivable, how does it affect the accounting equation?
a) Increases assets, decreases liabilities
b) One asset increases, another asset decreases
c) Increases assets, increases liabilities
d) Decreases liabilities, decreases equity
If total liabilities increase by $5,000 and total assets increase by $5,000, what happens to owner’s equity?
a) Increases by $5,000
b) Decreases by $5,000
c) Remains unchanged
d) Decreases by $10,000
Which financial statement is based directly on the accounting equation?
a) Balance Sheet
b) Income Statement
c) Cash Flow Statement
d) Statement of Retained Earnings
When a company declares and pays dividends, how does it affect the equation?
a) Assets decrease, equity decreases
b) Liabilities increase, assets increase
c) Equity increases, liabilities increase
d) Assets increase, equity increases
What happens if expenses exceed revenue in a financial period?
a) Owner’s equity increases
b) Liabilities increase
c) Owner’s equity decreases
d) Assets increase
What impact does purchasing land with a bank loan have?
a) Assets increase, liabilities increase
b) Assets decrease, liabilities decrease
c) Liabilities decrease, equity increases
d) No effect on the accounting equation
What does ‘double-entry accounting’ mean?
a) Every transaction affects at least two accounts
b) Every transaction affects only one account
c) Transactions are recorded twice for verification
d) Only cash transactions are recorded
If a business receives cash before providing services, how is it recorded?
a) Increase in assets, increase in liabilities
b) Increase in liabilities, decrease in equity
c) Increase in equity, decrease in liabilities
d) No effect on the equation
Which of the following accounts is NOT part of the accounting equation?
a) Assets
b) Liabilities
c) Expenses
d) Equity
When accounts payable are paid, what happens to the accounting equation?
a) Assets decrease, liabilities decrease
b) Assets increase, liabilities increase
c) Liabilities decrease, equity increases
d) No effect on the equation
