Accounting Equation Quiz 2 Financial Accounting Quiz On Aug 11, 2024 Share /30 123456789101112131415161718192021222324252627282930 Accounting Equation Quiz 2 Multiple Choice questions 30 questions in 20 minutes Pass Score 70% 1 / 30 If a company collects $5,500 in accounts receivable, what is the effect on the accounting equation ? Assets decrease and Liabilities increase Assets increase and Equity decreases Assets increase and Liabilities decrease Assets remain the same Collecting accounts receivable shifts assets from accounts receivable to cash, so total assets remain unchanged. 2 / 30 Which of the following best describes equity ? The value of the company's assets The total amount of cash the company has The residual interest in the assets after deducting liabilities The amount of debt owed by the company Equity represents the owners' claim on the assets of the company after all liabilities have been paid 3 / 30 If a business buys office supplies for $500 in cash, what happens to the accounting equation ? Assets decrease and Liabilities decrease Assets decrease and Assets increase Assets increase and Liabilities decrease Assets increase and Equity decreases Buying supplies with cash decreases one asset (cash) and increases another asset (office supplies). 4 / 30 Which component of the accounting equation is affected when dividends are declared ? Assets Revenue Liabilities Equity Declaring dividends reduces retained earnings, which is part of equity. 5 / 30 What happens to the accounting equation when a company purchases equipment for cash? Total assets decrease Total equity decreases Total liabilities increase Total assets remain the same When equipment is purchased for cash, one asset (cash) decreases while another asset (equipment) increases, leaving total assets unchanged 6 / 30 What is the effect on the accounting equation when a company pays a utility bill of $900? Assets decrease and Equity decreases Assets decrease and Liabilities decrease Assets increase and Liabilities increase Assets increase and Equity increases Paying a utility bill decreases assets (cash) and decreases equity (expenses). 7 / 30 Which of the following best describes a liability? An obligation of the company to transfer resources to another entity An economic resource owned by the company The residual interest in the company’s assets after deducting equity A distribution of profits to shareholders Liabilities are obligations that a company must settle in the future, often by transferring assets such as cash 8 / 30 What happens to the accounting equation if a business incurs a $1,000 expense? Assets decrease and Equity decreases Assets decrease and Liabilities decrease Assets increase and Equity increases Assets increase and Liabilities increase Expenses decrease assets (cash or bank account) and decrease equity (retained earnings). 9 / 30 How does paying salaries of $20,000 affect the accounting equation ? Assets decrease and Liabilities decrease Assets increase and Liabilities increase Assets increase and Equity increases Assets decrease and Equity decreases Paying salaries decreases assets (cash) and decreases equity (expenses). 10 / 30 Which of the following transactions will decrease equity? Purchase of land Issuance of common stock Payment of expenses Collection of accounts receivable Payment of expenses reduces net income, which decreases retained earnings, thereby reducing equity 11 / 30 If a company's assets total $500,000 and liabilities total $300,000, what is the amount of equity ? $300,000 $500,000 $200,000 $800,000 According to the accounting equation, equity is calculated as assets minus liabilities: $500,000 - $300,000 = $200,000 12 / 30 When a company receives $15,000 for services to be performed in the future, how is the accounting equation affected ? Assets decrease and Liabilities decrease Assets increase and Equity increases Assets increase and Liabilities increase Assets decrease and Equity increases Receiving cash for future services increases assets (cash) and creates a liability (unearned revenue). 13 / 30 If a company sells an asset for $1,200 that originally cost $800, how is the accounting equation affected ? Assets decrease and Equity increases by $400 Assets increase and Equity increases by $800 Assets increase and Equity decreases by $400 Assets increase and Equity increases by $400 Selling an asset for more than its cost increases assets (cash) and equity (gain). 14 / 30 If equity increases and liabilities remain constant, what must happen to assets ? Assets remain constant Cannot be determined Assets must decrease Assets must increase If equity increases and liabilities do not change, assets must increase to keep the accounting equation balanced 15 / 30 What effect does a cash sale have on the accounting equation? Assets decrease and Liabilities decrease Assets increase and Equity increases Assets increase and Liabilities decrease Assets decrease and Equity decreases A cash sale increases assets (cash) and increases equity (revenue). 16 / 30 What is the effect on the accounting equation when a company borrows money from a bank ? Increase in assets and decrease in liabilities Increase in assets and increase in liabilities No effect on the accounting equation Decrease in assets and increase in liabilities When a company borrows money, it receives cash (an asset) and also records a liability for the loan, increasing both sides of the equation 17 / 30 What is the effect on the accounting equation when inventory is purchased on credit ? Decrease in assets and decrease in liabilities Increase in assets and increase in liabilities Increase in assets and decrease in equity No effect on the accounting equation Purchasing inventory on credit increases the inventory account (an asset) and also increases accounts payable (a liability) 18 / 30 If a company pays off a $2,000 loan, how is the accounting equation affected ? Assets increase and Liabilities increase Assets decrease and Equity increases Assets increase and Equity decreases Assets decrease and Liabilities decrease Paying off a loan decreases both assets (cash) and liabilities (loan payable). 19 / 30 If a company purchases inventory worth $10,000 on credit, what is the effect on the accounting equation ? Assets increase and Equity decreases Assets increase and Liabilities increase Assets decrease and Liabilities increase Assets decrease and Liabilities decrease Purchasing inventory on credit increases both assets (inventory) and liabilities (accounts payable). 20 / 30 How does a purchase of a new building for $50,000, paid with cash, affect the accounting equation? Assets decrease and Assets increase Assets increase and Equity decreases Assets increase and Liabilities increase Assets increase and Assets decrease The purchase decreases one asset (cash) and increases another asset (building). 21 / 30 What happens to the accounting equation when a company receives a loan of $100,000? Assets increase and Equity increases Assets increase and Liabilities increase Assets decrease and Liabilities increase Assets decrease and Liabilities decrease Receiving a loan increases assets (cash) and liabilities (loan payable). 22 / 30 Which of the following is the correct accounting equation? Assets = Liabilities - Equity Liabilities = Assets + Equity Assets + Equity = Liabilities Assets = Liabilities + Equity The accounting equation represents the relationship between a company’s assets, liabilities, and equity. It ensures that a company's balance sheet is always balanced 23 / 30 Which of the following is the basic accounting equation? Assets = Revenue + Expenses Assets = Equity - Liabilities Assets = Liabilities + Equity Assets = Liabilities - Equity The basic accounting equation is Assets = Liabilities + Equity, which represents the relationship between a company's assets, liabilities, and equity. 24 / 30 If a company pays a $3,000 dividend to shareholders, what is the impact on the accounting equation ? Assets decrease and Equity decreases Assets decrease and Liabilities decrease Assets increase and Liabilities increase Assets increase and Equity decreases Paying dividends decreases assets (cash) and decreases equity (retained earnings). 25 / 30 What happens to the accounting equation when a company earns $1000 in interest income? Assets decrease and Liabilities increase Assets increase and Equity increases Assets increase and Liabilities decrease Assets decrease and Equity decreases Interest income increases assets (cash) and equity (revenue). 26 / 30 If a business acquires $5,000 in equipment on credit, what happens to the accounting equation? Assets decrease and Liabilities increase Assets increase and Liabilities increase Assets decrease and Liabilities decrease Assets increase and Equity increases Acquiring equipment on credit increases both assets (equipment) and liabilities (accounts payable). 27 / 30 What is the effect on the accounting equation when a company writes off a $700 bad debt? Assets decrease and Liabilities increase Assets increase and Liabilities decrease Assets increase and Equity increases Assets decrease and Equity decreases Writing off bad debt decreases assets (accounts receivable) and decreases equity (expense). 28 / 30 How does issuing common stock for $10,000 impact the accounting equation ? Assets increase and Liabilities decrease Assets decrease and Equity decreases Assets increase and Equity increases Assets decrease and Liabilities increase Issuing common stock increases both assets (cash) and equity (common stock). 29 / 30 What happens to the accounting equation if a company buys equipment for $50,000 and pays with a bank loan? Assets increase and Liabilities increase Assets decrease and Liabilities increase Assets decrease and Liabilities decrease Assets increase and Equity decreases Buying equipment increases assets (equipment) and liabilities (loan payable). 30 / 30 If a business owner withdraws $10,000 for personal use, what is the impact on the accounting equation ? Assets increase and Equity increases Assets decrease and Liabilities increase Assets increase and Liabilities increase Assets decrease and Equity decreases Owner withdrawals decrease assets (cash) and decrease equity (drawings). 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