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Explain the concept of accounting equation - class-XI

Description: explain the concept of accounting equation
Number of Questions: 19
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Tags: recording of transactions - i elements of book keeping and accountancy accountancy introduction to accountancy accounting equation original entry: journal and subsidiary books accounting equation effects accounting equations elements of accounts double entry book keeping system accounting equation and business transactions
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Which of the following is accounting equation?

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

  1. Capital = Assets + Liabilities

  2. Capital = Assets - Liabilities

  3. Assets = Liabilities - Capital

  4. Liabilities = Assets + Capital

Show answer
Correct Option: B
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.

The accounting equation is based on __________.

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

  1. Going concern concept

  2. Dual aspect concept

  3. Money measurement concept

  4. All of the above

Show answer
Correct Option: B
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.

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 ___________.

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

  1. Rs. $50,000$

  2. Rs. $30,000$

  3. Rs. $70,000$

  4. Rs. $20,000$

Show answer
Correct Option: C

Dual aspect concept results in the accounting equation _____________.

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

  1. Capital + Liabilities = Assets

  2. Revenue = Expenses

  3. Capital + Profit = Assets + Expenses

  4. none of these

Show answer
Correct Option: A
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).

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 __________.

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

  1. Rs. $4,00,000$

  2. Rs. $2,00,000$

  3. Rs. $1,00,000$

  4. none of the above

Show answer
Correct Option: B

Net worth of the business means _________________.

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

  1. Total assets minus depreciation

  2. Including expensene and debts.

  3. Total assets minus total outside liabilities

  4. Fixed assets minus current assets

Show answer
Correct Option: C

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 __________________.

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

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

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

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

  4. $48,000 = 50,000 - 2,000$

Show answer
Correct Option: A

Which of the following equations is correct?

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

  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

Show answer
Correct Option: C

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

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

  1. Proprietor's withdrawals

  2. Sale of good on credit

  3. Purchasing a machinery on credit

  4. Retained earnings

Show answer
Correct Option: D
Explanation:

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

Hence, option D is correct.

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___________. 

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

  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. $Rs. 2,20,000 = 0 + Rs. 2,20,000$

Show answer
Correct Option: A

The accounting equation is based on _________________.

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

  1. Going concern concept

  2. Dual aspect concept

  3. Money measurement concept

  4. Materiality concept

Show answer
Correct Option: B
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).

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

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

  1. $Rs. 3,20,000$

  2. $Rs. 2,60,000$

  3. $Rs. 2,00,000$

  4. $Rs. 60,000$

Show answer
Correct Option: C

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

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

  1. Total Liabilities

  2. Net worth

  3. Shareholders Fund

  4. Gross Block

Show answer
Correct Option: A

An increase in one liability may lead to _________________.

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

  1. Increase in another asset

  2. Decrease in liability

  3. Both (A) and (B)

  4. Either (A) or (B)

Show answer
Correct Option: D

Capital is the difference between.

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

  1. Income and expenses

  2. Sales and Cost of goods sold

  3. Assets and liabilites

  4. None of the above

Show answer
Correct Option: C

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

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

  1. 800

  2. 2,000

  3. 3,200

  4. 1,200.

Show answer
Correct Option: A
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.

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

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

  1. Capital account and cash account

  2. Furniture account and cash account

  3. Furniture account and capital account

  4. Capital account and bank account.

Show answer
Correct Option: B

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?

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

  1. Rs. $2,10,000$

  2. Rs. $1,90,000$

  3. Rs. $1,20,000$

  4. Rs. $1,70,000$

Show answer
Correct Option: B

Which of the following accounting equation is correct?

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

  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. $3,000$)

Show answer
Correct Option: D
Explanation:

Accounting Equation :- Total Assets = Capital+ Liabilities 

                                    = 15000 = 15000
Option D is Correct

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