Master the Accounting Equation: A Comprehensive Guide for Sixth Form Students

Question 1

Which element is NOT part of the Accounting Equation?

Accepted Answer

Expenses

Answer

Assets

Answer

Liabilities

Answer

Equity

Question 2

Which transaction will reduce the Equity side of the Accounting Equation?

Accepted Answer

Declaring dividends

Answer

Issuing more shares

Answer

Paying back a loan

Question 3

Which of the following is NOT an essential element of the Accounting Equation?

Accepted Answer

Revenue

Answer

Assets

Answer

Liabilities

Answer

Owners' Equity

Question 4

When a company acquires inventory on credit, how does this transaction impact the Accounting Equation?

Accepted Answer

Increases Assets and Liabilities

Answer

Increases Assets and Owners' Equity

Answer

Decreases Assets and Liabilities

Answer

Decreases Assets and Owners' Equity

Question 5

Which transaction would result in an increase in the Owners' Equity account?

Accepted Answer

Generating a profit

Answer

Purchasing equipment with a loan

Answer

Repaying a bank loan

Answer

Withdrawing funds for personal use

Question 6

What is the formula to calculate Net Profit?

Accepted Answer

Revenue - Expenses

Answer

Assets - Liabilities

Answer

Owners' Equity + Revenue

Answer

Liabilities - Assets

Question 7

Which transaction would lead to an increase in both Assets and Liabilities?

Accepted Answer

Acquiring a building through a mortgage

Answer

Selling inventory for cash

Answer

Repaying a loan

Answer

Receiving payment for services rendered

Question 8

What is the main function of the Double-Entry Accounting System?

Accepted Answer

To ensure accuracy and uphold the Accounting Equation

Answer

To simplify the accounting process

Answer

To monitor cash flow

Answer

To generate financial reports

Question 9

Which equation is the basis of accounting and shows a company's financial status?

Accepted Answer

Assets = Liabilities + Equity

Answer

Liabilities = Equity - Assets

Answer

Equity = Assets + Liabilities

Question 10

Which formula represents the fundamental structure of the Accounting Equation?

Accepted Answer

Assets - Liabilities = Equity

Answer

Assets = Liabilities + Capital

Answer

Liabilities + Equity = Assets

Answer

Capital + Debt = Equity

Question 11

Which transaction would result in an increase in both an asset and a liability?

Accepted Answer

Purchasing inventory on account

Answer

Issuing shares for cash

Answer

Recording depreciation on an asset

Answer

Paying off an account payable

Question 12

Which characteristic is NOT attributed to the Accounting Equation?

Accepted Answer

It includes personal accounts

Answer

It maintains equality at all times

Answer

It is dynamic and changes with transactions

Answer

It forms the basis of double-entry bookkeeping

Question 13

Which account type would decrease with the following transaction: "Withdrawal of cash by the owner"?

Accepted Answer

Equity

Answer

Assets

Answer

Liabilities

Answer

Revenue

Question 14

Which statement accurately describes the relationship between assets and liabilities?

Accepted Answer

Assets exceed liabilities for a solvent business

Answer

Assets are what the business owes

Answer

Liabilities are what the business owns

Answer

Assets and liabilities are always equal

Question 15

Which of the following is considered a real account?

Accepted Answer

Cash

Answer

Accumulated Depreciation

Answer

Sales Revenue

Answer

Unearned Revenue

Question 16

Which components of the Accounting Equation are increased by the transaction "Sale of inventory for cash"?

Accepted Answer

Assets and Equity

Answer

Assets and Liabilities

Answer

Liabilities and Equity

Answer

Revenue and Expenses

Question 17

Which sub-classification of assets includes cash on hand and in the bank?

Accepted Answer

Current Assets

Answer

Fixed Assets

Answer

Intangible Assets

Answer

Non-Current Assets

Question 18

A company receives a loan of $100,000 and uses half of it to buy inventory. How does this impact the Accounting Equation?

Accepted Answer

Assets increase by $100,000, and Liabilities increase by $50,000.

Answer

Assets remain unchanged, and Liabilities increase by $100,000.

Answer

Assets increase by $150,000, and Equity increases by $50,000.

Question 19

Which of the following transactions would simultaneously increase both an asset and a liability?

Accepted Answer

Acquiring a loan

Answer

Selling products for cash

Answer

Purchasing inventory for cash

Answer

Repaying a loan

Question 20

Which characteristic is unique to assets?

Accepted Answer

Controlled by the company

Answer

Ownership interest

Answer

Obligation to pay

Answer

Temporary in nature

Question 21

Which account type represents an ownership interest in a company?

Accepted Answer

Equity

Answer

Expense

Answer

Asset

Answer

Liability

Question 22

Which of the following is a limitation of the accounting equation?

Accepted Answer

It does not consider qualitative factors

Answer

It is excessively complex

Answer

It is only applicable to large corporations

Answer

Its accuracy is questionable