Tag: accounting equations and transactions

Questions Related to accounting equations and transactions

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

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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

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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