Financial Accounting Quiz

Accounting Equation Multiple Choice Questions Quiz

31/05/2026 8 min read
Accounting Equation Multiple Choice Questions Quiz

📑 table of contents

  1. Accounting Equation Multiple Choice Questions
  2. Accounting Equation MCQ Quiz Online
  3. Accounting Equation Multiple Choice Questions (MCQs) with Answers

Accounting Equation Multiple Choice Questions

“Scroll down to see the correct answers with detailed explanations.”

  1. Which of the following is the basic accounting equation?
    • A) Assets = Liabilities + Equity
    • B) Assets = Liabilities – Equity
    • C) Assets = Revenue + Expenses
    • D) Assets = Equity – Liabilities
  2. If a business acquires $5,000 in equipment on credit, what happens to the accounting equation?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity increases
    • D) Assets decrease and Liabilities increase
  3. What effect does a cash sale have on the accounting equation?
    • A) Assets increase and Equity increases
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Liabilities decrease
    • D) Assets decrease and Equity decreases
  4. If a company pays off a $2,000 loan, how is the accounting equation affected?
    • A) Assets decrease and Liabilities decrease
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Equity increases
    • D) Assets increase and Equity decreases
  5. What happens to the accounting equation if a business incurs a $1,000 expense?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities decrease
    • D) Assets increase and Equity increases
  6. How does issuing common stock for $10,000 impact the accounting equation?
    • A) Assets increase and Liabilities decrease
    • B) Assets increase and Equity increases
    • C) Assets decrease and Liabilities increase
    • D) Assets decrease and Equity decreases
  7. If a company purchases inventory worth $3,000 on credit, what is the effect on the accounting equation?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity decreases
    • D) Assets decrease and Liabilities increase
  8. What happens to the accounting equation when a company earns $500 in interest income?
    • A) Assets increase and Equity increases
    • B) Assets decrease and Liabilities increase
    • C) Assets increase and Liabilities decrease
    • D) Assets decrease and Equity decreases
  9. How does paying salaries of $2,000 affect the accounting equation?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities decrease
    • D) Assets increase and Equity increases
  10. If a business owner withdraws $1,500 for personal use, what is the impact on the accounting equation?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities increase
    • D) Assets increase and Equity increases
  11. When a company receives $2,000 for services to be performed in the future, how is the accounting equation affected?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity increases
    • D) Assets decrease and Equity increases
  12. What is the effect on the accounting equation when a company writes off a $500 bad debt?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities decrease
    • C) Assets decrease and Liabilities increase
    • D) Assets increase and Equity increases
  13. If a business buys office supplies for $300 in cash, what happens to the accounting equation?
    • A) Assets increase and Liabilities decrease
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity decreases
    • D) Assets decrease and Assets increase
  14. What happens to the accounting equation when a company receives a loan of $10,000?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity increases
    • D) Assets decrease and Liabilities increase
  15. If a company pays a $1,000 dividend to shareholders, what is the impact on the accounting equation?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities decrease
    • D) Assets increase and Equity decreases

Accounting Equation MCQ Quiz Online

 

Accounting Equation Multiple Choice Questions

30 questions in 20 minutes

Pass Score 70%

1 / 30

How does paying salaries of $20,000 affect the accounting equation ?

2 / 30

If a company pays a $3,000 dividend to shareholders, what is the impact on the accounting equation ?

3 / 30

What happens to the accounting equation when a company purchases equipment for cash?

4 / 30

Which of the following transactions will decrease equity?

5 / 30

If equity increases and liabilities remain constant, what must happen to assets ?

6 / 30

Which of the following is the correct accounting equation?

7 / 30

What is the effect on the accounting equation when a company writes off a $700 bad debt?

8 / 30

How does issuing common stock for $10,000 impact the accounting equation ?

9 / 30

What happens to the accounting equation if a business incurs a $1,000 expense?

10 / 30

How does a purchase of a new building for $50,000, paid with cash, affect the accounting equation?

11 / 30

If a business buys office supplies for $500 in cash, what happens to the accounting equation ?

12 / 30

Which of the following best describes equity ?

13 / 30

What is the effect on the accounting equation when inventory is purchased on credit ?

14 / 30

If a company collects $5,500 in accounts receivable, what is the effect on the accounting equation ?

15 / 30

What happens to the accounting equation when a company earns $1000 in interest income?

16 / 30

What effect does a cash sale have on the accounting equation?

17 / 30

When a company receives $15,000 for services to be performed in the future, how is the accounting equation affected ?

18 / 30

If a company pays off a $2,000 loan, how is the accounting equation affected ?

19 / 30

Which component of the accounting equation is affected when dividends are declared ?

20 / 30

If a business acquires $5,000 in equipment on credit, what happens to the accounting equation?

21 / 30

What happens to the accounting equation if a company buys equipment for $50,000 and pays with a bank loan?

22 / 30

If a company's assets total $500,000 and liabilities total $300,000, what is the amount of equity ?

23 / 30

Which of the following best describes a liability?

24 / 30

What is the effect on the accounting equation when a company pays a utility bill of $900?

25 / 30

What is the effect on the accounting equation when a company borrows money from a bank ?

26 / 30

If a business owner withdraws $10,000 for personal use, what is the impact on the accounting equation ?

27 / 30

If a company sells an asset for $1,200 that originally cost $800, how is the accounting equation affected ?

28 / 30

What happens to the accounting equation when a company receives a loan of $100,000?

29 / 30

If a company purchases inventory worth $10,000 on credit, what is the effect on the accounting equation ?

30 / 30

Which of the following is the basic accounting equation?

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Accounting Equation Multiple Choice Questions (MCQs) with Answers

  1. Which of the following is the basic accounting equation?
    • A) Assets = Liabilities + Equity
    • B) Assets = Liabilities – Equity
    • C) Assets = Revenue + Expenses
    • D) Assets = Equity – Liabilities
    • Answer: A) Assets = Liabilities + Equity
      • Explanation: The basic accounting equation is Assets = Liabilities + Equity, which represents the relationship between a company’s assets, liabilities, and equity.
  2. If a business acquires $5,000 in equipment on credit, what happens to the accounting equation?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity increases
    • D) Assets decrease and Liabilities increase
    • Answer: A) Assets increase and Liabilities increase
      • Explanation: Acquiring equipment on credit increases both assets (equipment) and liabilities (accounts payable).
  3. What effect does a cash sale have on the accounting equation?
    • A) Assets increase and Equity increases
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Liabilities decrease
    • D) Assets decrease and Equity decreases
    • Answer: A) Assets increase and Equity increases
      • Explanation: A cash sale increases assets (cash) and increases equity (revenue).
  4. If a company pays off a $2,000 loan, how is the accounting equation affected?
    • A) Assets decrease and Liabilities decrease
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Equity increases
    • D) Assets increase and Equity decreases
    • Answer: A) Assets decrease and Liabilities decrease
      • Explanation: Paying off a loan decreases both assets (cash) and liabilities (loan payable).
  5. What happens to the accounting equation if a business incurs a $1,000 expense?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities decrease
    • D) Assets increase and Equity increases
    • Answer: A) Assets decrease and Equity decreases
      • Explanation: Expenses decrease assets (cash or bank account) and decrease equity (retained earnings).
  6. How does issuing common stock for $10,000 impact the accounting equation?
    • A) Assets increase and Liabilities decrease
    • B) Assets increase and Equity increases
    • C) Assets decrease and Liabilities increase
    • D) Assets decrease and Equity decreases
    • Answer: B) Assets increase and Equity increases
      • Explanation: Issuing common stock increases both assets (cash) and equity (common stock).
  7. If a company purchases inventory worth $3,000 on credit, what is the effect on the accounting equation?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity decreases
    • D) Assets decrease and Liabilities increase
    • Answer: A) Assets increase and Liabilities increase
      • Explanation: Purchasing inventory on credit increases both assets (inventory) and liabilities (accounts payable).
  8. What happens to the accounting equation when a company earns $500 in interest income?
    • A) Assets increase and Equity increases
    • B) Assets decrease and Liabilities increase
    • C) Assets increase and Liabilities decrease
    • D) Assets decrease and Equity decreases
    • Answer: A) Assets increase and Equity increases
      • Explanation: Interest income increases assets (cash) and equity (revenue).
  9. How does paying salaries of $2,000 affect the accounting equation?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities decrease
    • D) Assets increase and Equity increases
    • Answer: A) Assets decrease and Equity decreases
      • Explanation: Paying salaries decreases assets (cash) and decreases equity (expenses).
  10. If a business owner withdraws $1,500 for personal use, what is the impact on the accounting equation?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities increase
    • D) Assets increase and Equity increases
    • Answer: A) Assets decrease and Equity decreases
      • Explanation: Owner withdrawals decrease assets (cash) and decrease equity (drawings).
  11. When a company receives $2,000 for services to be performed in the future, how is the accounting equation affected?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity increases
    • D) Assets decrease and Equity increases
    • Answer: A) Assets increase and Liabilities increase
      • Explanation: Receiving cash for future services increases assets (cash) and creates a liability (unearned revenue).
  12. What is the effect on the accounting equation when a company writes off a $500 bad debt?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities decrease
    • C) Assets decrease and Liabilities increase
    • D) Assets increase and Equity increases
    • Answer: A) Assets decrease and Equity decreases
      • Explanation: Writing off bad debt decreases assets (accounts receivable) and decreases equity (expense).
  13. If a business buys office supplies for $300 in cash, what happens to the accounting equation?
    • A) Assets increase and Liabilities decrease
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity decreases
    • D) Assets decrease and Assets increase
    • Answer: D) Assets decrease and Assets increase
      • Explanation: Buying supplies with cash decreases one asset (cash) and increases another asset (office supplies).
  14. What happens to the accounting equation when a company receives a loan of $10,000?
    • A) Assets increase and Liabilities increase
    • B) Assets decrease and Liabilities decrease
    • C) Assets increase and Equity increases
    • D) Assets decrease and Liabilities increase
    • Answer: A) Assets increase and Liabilities increase
      • Explanation: Receiving a loan increases assets (cash) and liabilities (loan payable).
  15. If a company pays a $1,000 dividend to shareholders, what is the impact on the accounting equation?
    • A) Assets decrease and Equity decreases
    • B) Assets increase and Liabilities increase
    • C) Assets decrease and Liabilities decrease
    • D) Assets increase and Equity decreases
    • Answer: A) Assets decrease and Equity decreases
      • Explanation: Paying dividends decreases assets (cash) and decreases equity (retained earnings).

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