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 The accounting equation does not account for contingencies. False True Contingent liabilities are not recorded in the equation until they become probable and measurable 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 assets increase, and liabilities stay the same, equity must decrease. False True If assets increase while liabilities remain constant, equity must increase to balance the equation 5 / 30 Investments by owners increase liabilities. False True Investments by owners increase equity, not liabilities. 6 / 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. 7 / 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. 8 / 30 Retained earnings are part of equity. True False Retained earnings are accumulated profits that are part of shareholders' equity 9 / 30 Borrowing money increases liabilities and assets. True False Borrowing increases cash (an asset) and the amount owed (a liability), leaving equity unchanged. 10 / 30 Dividends paid to shareholders reduce equity. False True Dividends are distributions of earnings to shareholders and decrease retained earnings, which reduces equity. 11 / 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 12 / 30 A net loss will decrease equity. False True A net loss decreases retained earnings, which reduces equity. 13 / 30 The accounting equation only applies to corporations. True False The accounting equation applies to all forms of businesses, including sole proprietorships, partnerships, and corporations 14 / 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 15 / 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 16 / 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. 17 / 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 18 / 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[ 19 / 30 If equity increases, then assets must also increase. False True Equity can increase through retained earnings without an immediate increase in assets 20 / 30 The accounting equation does not apply to non-profit organizations. False True Non-profit organizations also use a form of the accounting equation, where net assets replace equity 21 / 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 22 / 30 Unearned revenue is recorded as equity. True False Unearned revenue is a liability until the service is performed or the product is delivered. 23 / 30 Depreciation of assets decreases equity. False True Depreciation is an expense that reduces net income, thereby decreasing retained earnings and equity 24 / 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. 25 / 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 26 / 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 27 / 30 Accounts payable is a type of equity. False True Accounts payable is a liability, not equity 28 / 30 Equity can be calculated by subtracting liabilities from assets. True False The accounting equation rearranged as Equity = Assets - Liabilities is commonly used to calculate shareholders' equity 29 / 30 Goodwill is recorded as a liability. True False Goodwill is recorded as an intangible asset, not a liability[ 30 / 30 Revenue increases equity in the accounting equation. True False Revenue increases net income, which in turn increases retained earnings and thus equity. 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