Accounting Equation Quiz 1 Financial Accounting Quiz On Mar 31, 2026 Share Follow the Facebook page Accountants Quiz and join the group Accounting Quiz Accounting Equation Quiz 1 True or False questions 30 questions in 20 minutes Pass Score 70% 1 / 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 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 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. 4 / 30 If equity increases, then assets must also increase. True False Equity can increase through retained earnings without an immediate increase in assets 5 / 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 6 / 30 Depreciation of assets decreases equity. False True Depreciation is an expense that reduces net income, thereby decreasing retained earnings and equity 7 / 30 Accounts payable is a type of equity. True False Accounts payable is a liability, not equity 8 / 30 A net loss will decrease equity. False True A net loss decreases retained earnings, which reduces equity. 9 / 30 Revenue increases equity in the accounting equation. True False Revenue increases net income, which in turn increases retained earnings and thus equity. 10 / 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 11 / 30 Dividends paid to shareholders reduce equity. True False Dividends are distributions of earnings to shareholders and decrease retained earnings, which reduces equity. 12 / 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 13 / 30 Goodwill is recorded as a liability. True False Goodwill is recorded as an intangible asset, not a liability[ 14 / 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 15 / 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 16 / 30 Expenses decrease liabilities in the accounting equation. False True Expenses decrease equity, not liabilities, as they reduce net income and thus retained earnings 17 / 30 The accounting equation is always in balance. False True The accounting equation must always balance, reflecting the dual aspect of every financial transaction. 18 / 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 19 / 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 20 / 30 When a company purchases equipment with cash, total assets remain unchanged. True False Purchasing equipment with cash decreases cash but increases equipment, so total assets remain the same 21 / 30 Paying off a liability reduces both liabilities and assets. True False When a liability is paid, cash (an asset) decreases, and the liability decreases. 22 / 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 23 / 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 24 / 30 If liabilities increase, equity must decrease to keep the equation balanced. True False An increase in liabilities could be offset by an increase in assets, leaving equity unchanged[ 25 / 30 Retained earnings are part of equity. True False Retained earnings are accumulated profits that are part of shareholders' equity 26 / 30 Unearned revenue is recorded as equity. True False Unearned revenue is a liability until the service is performed or the product is delivered. 27 / 30 Investments by owners increase liabilities. True False Investments by owners increase equity, not liabilities. 28 / 30 Borrowing money increases liabilities and assets. True False Borrowing increases cash (an asset) and the amount owed (a liability), leaving equity unchanged. 29 / 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. 30 / 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. Your score is LinkedIn Facebook Twitter VKontakte 0% See review Send feedback Accounting EquationAccounting Equation QuizAccounting Equation Quiz 1
