Accounting Equation Quiz 1 Financial Accounting Quiz On Jan 23, 2025 Share /30 123456789101112131415161718192021222324252627282930 Accounting Equation Quiz 1 True or False questions 30 questions in 20 minutes Pass Score 70% 1 / 30 Liabilities represent the company's debts and obligations. True False Liabilities are the amounts a company owes to creditors and are part of the accounting equation 2 / 30 A balance sheet is also known as a statement of financial position. True False The balance sheet is often referred to as a statement of financial position, reflecting the accounting equation 3 / 30 Investments by owners increase liabilities. False True Investments by owners increase equity, not liabilities. 4 / 30 Revenue increases equity in the accounting equation. False True Revenue increases net income, which in turn increases retained earnings and thus equity. 5 / 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. 6 / 30 Liabilities can be either current or long-term. False True Liabilities are classified based on their due date as either current (short-term) or long-term. 7 / 30 The accounting equation is Assets = Liabilities + Equity. True False 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 8 / 30 Equity represents the owners' claim after liabilities have been paid. False True Equity is the residual interest in the assets of the entity after deducting liabilities. 9 / 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 10 / 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 11 / 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 12 / 30 If equity increases, then assets must also increase. False True Equity can increase through retained earnings without an immediate increase in assets 13 / 30 Retained earnings are part of equity. False True Retained earnings are accumulated profits that are part of shareholders' equity 14 / 30 Dividends paid to shareholders reduce equity. False True Dividends are distributions of earnings to shareholders and decrease retained earnings, which reduces equity. 15 / 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 16 / 30 Goodwill is recorded as a liability. True False Goodwill is recorded as an intangible asset, not a liability[ 17 / 30 If a company issues new shares, its equity will increase. False True Issuing shares increases the company's capital, which is part of equity. 18 / 30 Depreciation of assets decreases equity. False True Depreciation is an expense that reduces net income, thereby decreasing retained earnings and equity 19 / 30 Prepaid expenses are recorded as a liability. True False Prepaid expenses are an asset, as they represent payments made in advance for goods or services 20 / 30 Assets can exceed the sum of liabilities and equity. False True According to the accounting equation, total assets must always equal the sum of liabilities and equity 21 / 30 A net loss will decrease equity. False True A net loss decreases retained earnings, which reduces equity. 22 / 30 Expenses decrease liabilities in the accounting equation. False True Expenses decrease equity, not liabilities, as they reduce net income and thus retained earnings 23 / 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[ 24 / 30 Unearned revenue is recorded as equity. False True Unearned revenue is a liability until the service is performed or the product is delivered. 25 / 30 Owner’s equity is always equal to total assets minus total liabilities. False True This is the definition of owner’s equity according to the accounting equation 26 / 30 Accounts payable is a type of equity. True False Accounts payable is a liability, not equity 27 / 30 Borrowing money increases liabilities and assets. False True Borrowing increases cash (an asset) and the amount owed (a liability), leaving equity unchanged. 28 / 30 The accounting equation is always in balance. False True The accounting equation must always balance, reflecting the dual aspect of every financial transaction. 29 / 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 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
