Accounting Equation Quiz 1 Financial Accounting Quiz On Aug 11, 2024 Share /30 123456789101112131415161718192021222324252627282930 Accounting Equation Quiz 1 True or False questions 30 questions in 20 minutes Pass Score 70% 1 / 30 Prepaid expenses are recorded as a liability. False True Prepaid expenses are an asset, as they represent payments made in advance for goods or services 2 / 30 The accounting equation can be used to derive the balance sheet. False True The balance sheet is a detailed representation of the accounting equation, showing assets, liabilities, and equity 3 / 30 If a company issues new shares, its equity will increase. True False Issuing shares increases the company's capital, which is part of equity. 4 / 30 Accounts payable is a type of equity. True False Accounts payable is a liability, not equity 5 / 30 Investments by owners increase liabilities. True False Investments by owners increase equity, not liabilities. 6 / 30 Unearned revenue is recorded as equity. False True Unearned revenue is a liability until the service is performed or the product is delivered. 7 / 30 Equity can be calculated by subtracting liabilities from assets. False True The accounting equation rearranged as Equity = Assets - Liabilities is commonly used to calculate shareholders' equity 8 / 30 If assets increase, and liabilities stay the same, equity must decrease. True False If assets increase while liabilities remain constant, equity must increase to balance the equation 9 / 30 A net loss will decrease equity. False True A net loss decreases retained earnings, which reduces equity. 10 / 30 Retained earnings are part of equity. True False Retained earnings are accumulated profits that are part of shareholders' equity 11 / 30 The accounting equation is always in balance. False True The accounting equation must always balance, reflecting the dual aspect of every financial transaction. 12 / 30 Borrowing money increases liabilities and assets. True False Borrowing increases cash (an asset) and the amount owed (a liability), leaving equity unchanged. 13 / 30 If liabilities increase, equity must decrease to keep the equation balanced. False True An increase in liabilities could be offset by an increase in assets, leaving equity unchanged[ 14 / 30 The accounting equation is Assets = Liabilities + Equity. False True This is the fundamental accounting equation that underpins the balance sheet. It shows that what a company owns is financed by either debt or equity 15 / 30 Revenue increases equity in the accounting equation. True False Revenue increases net income, which in turn increases retained earnings and thus equity. 16 / 30 The accounting equation does not apply to non-profit organizations. True False Non-profit organizations also use a form of the accounting equation, where net assets replace equity 17 / 30 The accounting equation only applies to corporations. False True The accounting equation applies to all forms of businesses, including sole proprietorships, partnerships, and corporations 18 / 30 Assets can exceed the sum of liabilities and equity. True False According to the accounting equation, total assets must always equal the sum of liabilities and equity 19 / 30 Paying off a liability reduces both liabilities and assets. False True When a liability is paid, cash (an asset) decreases, and the liability decreases. 20 / 30 When a company purchases equipment with cash, total assets remain unchanged. False True Purchasing equipment with cash decreases cash but increases equipment, so total assets remain the same 21 / 30 Liabilities can be either current or long-term. True False Liabilities are classified based on their due date as either current (short-term) or long-term. 22 / 30 Expenses decrease liabilities in the accounting equation. True False Expenses decrease equity, not liabilities, as they reduce net income and thus retained earnings 23 / 30 Liabilities represent the company's debts and obligations. False True Liabilities are the amounts a company owes to creditors and are part of the accounting equation 24 / 30 Goodwill is recorded as a liability. False True Goodwill is recorded as an intangible asset, not a liability[ 25 / 30 If equity increases, then assets must also increase. False True Equity can increase through retained earnings without an immediate increase in assets 26 / 30 The accounting equation can be used to assess a company's financial health. True False The accounting equation helps in understanding the balance between a company’s assets, liabilities, and equity, providing insight into its financial position. 27 / 30 Depreciation of assets decreases equity. False True Depreciation is an expense that reduces net income, thereby decreasing retained earnings and equity 28 / 30 Equity represents the owners' claim after liabilities have been paid. True False Equity is the residual interest in the assets of the entity after deducting liabilities. 29 / 30 A balance sheet is also known as a statement of financial position. False True The balance sheet is often referred to as a statement of financial position, reflecting the accounting equation 30 / 30 The accounting equation does not account for contingencies. True False Contingent liabilities are not recorded in the equation until they become probable and measurable Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Accounting EquationAccounting Equation QuizAccounting Equation Quiz 1
