Accounting Equations MCQs
Written by True Tamplin, BSc, CEPF®
Updated on April 29, 2022
Take this quick test on accounting equations to help you prepare for your exams, interviews, or different tests. If you find it difficult to answer any of these questions, you can read about accounting ratios on this website.
This multiple choice question (MCQ) test contains 23 questions. Each question has 4 options and you’ll need to choose the 1 correct option. The results will be shown after you answer the questions and submit the quiz.
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Question 1 of 23
1. Question
Resources minus capital equals:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “liabilities” (option 2). -
Question 2 of 23
2. Question
Assets are always equal to:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “liabilities + capital” (option 3). -
Question 3 of 23
3. Question
Purchase of machinery for cash:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “keeps total assets unchanged” (option 3). -
Question 4 of 23
4. Question
The excess of assets over liabilities is:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “capital” (option 1). -
Question 5 of 23
5. Question
Expenses paid by a business decrease:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “cash and capital” (option 3). -
Question 6 of 23
6. Question
A person who owes money to a business is known as a:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “debtor” (option 1). -
Question 7 of 23
7. Question
Merchandise costing $1,000 are sold for $1,250. This will increase owner’s equity by:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “$250” (option 3). -
Question 8 of 23
8. Question
Cash is received from Mr. Jones, a debtor of the business. It will affect:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “cash and debtors” (option 1). -
Question 9 of 23
9. Question
Capital + Liabilities – Assets = ?
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “0” (option 2). -
Question 10 of 23
10. Question
A cash discount is provided on:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “prompt payment” (option 3). -
Question 11 of 23
11. Question
Cash used by an owner to start a business is called:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “capital” (option 4). -
Question 12 of 23
12. Question
Closing stock and sundry debtors are examples of:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “current assets” (option 3). -
Question 13 of 23
13. Question
If total assets increase by $20,000 and total liabilities increase by $12,000, the capital will:
Correct
Awesome! Your answer is correct.Incorrect
Your answer is incorrect. The correct answer is “increase by $8,000” (option 2). -
Question 14 of 23
14. Question
The accounting equation can be written as:
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option C”
The accounting equation Assets = Opening Capital + Profit – Drawings + Liabilities can be rewritten as:
Assets – Liabilities – Opening Capital + Drawings = Profit -
Question 15 of 23
15. Question
The capital of a sole trader will change as a result of:
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option D”.
Petrol being paid in petty cash means assets decrease and drawings increase, which decreases capital. Option A is a switch between assets, while option B and C increase assets and increase liabilities.
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Question 16 of 23
16. Question
A business can make a profit and yet have a lower bank balance. Which of the following might cause this to happen?
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option C”.
The lengthening of the period on credit is given to customers, since this means that while there are increased profits as the level of sales increases, it takes longer to collect cash from those customers.
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Question 17 of 23
17. Question
The purpose of a financial statement that lists an entity’s total capital/liabilities is to show:
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option D.”
A relates to the income statement, while B and C suggest that the statement of financial position represents a valuation that is incorrect.
D is correct because it is the definition of a statement of a financial position’s purpose.
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Question 18 of 23
18. Question
A sole trader is $5,000 overdrawn at the bank and receives $1,000 from a credit customer in respect of its account. Which elements of the accounting equation will change due to this transaction?
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option A.”
The overdraft liability will decrease and receivables will decrease by an equal amount.
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Question 19 of 23
19. Question
A sole trader purchases goods on credit. Which elements of the accounting equation will change due to the transaction?
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option A.”
Assets will increase as the sole trader has acquired inventory, and liabilities will increase because the goods were purchased on credit.
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Question 20 of 23
20. Question
A sole trader borrows $10,000 from the bank. Which elements of the accounting equation will change due to this transaction?
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is wrong. The correct answer is “Option A.”
Assets increase as cash on receipt of the loan funds, and liabilities will increase as the loan is a liability.
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Question 21 of 23
21. Question
A sole trader sells goods for cash for $500 which had cost of $300.
Which elements of the accounting equation will change due to this transaction?
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! Your answer is not correct. The correct answer is “Option B”.
Assets will increase as there is an increase in cash of $500 and a decrease in inventory of only $300, and capital will increase due to the profit of $200.
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Question 22 of 23
22. Question
A sole trader increases the business’s number of motor vehicles by adding his own car to its fleet.
Which elements of the accounting equation will change due to this transaction?
Correct
Congratulations! Your answer is correct.
Incorrect
Oops! You gave the wrong answer. The correct answer is “Option C”.
The car increases assets while it is treated as capital introduced rather than as a libilitiy of the business to its proprietor.
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Question 23 of 23
23. Question
Which three of the following are elements of the financial statements as identified by the conceptual framework for financial reporting?
Correct
Congratulations! your answer is corrct.
Incorrect
Oops! You chose the wrong options. The correct options are “A,B and G”
According to the Conceptual Framework, income, expenses and equity are elements of financial statements. The Conceptual Framework also identifies assets and liabilities as elements of financial statements.
You can also check:
Frequently Asked Questions
What are the four types of liabilities?
Businesses typically have four types of liabilities—current liabilities, non-current liabilities, contingent liabilities, and capital.
How do you calculate capital on a balance sheet?
An asset is a resource with economic value that an individual, corporation or government owns and that provides future economic benefit to its owner.
How do you calculate capital on a balance sheet?
How do you calculate capital on a balance sheet?
Who is a creditor and a debtor?
In accounting, a creditor is one who has delivered a product or service, and is owed money by one or more debtors. A debtor is the opposite of a creditor – it refers to the person or entity who owes money.
What is a cash discount?
A cash discount is a price reduction offered by the seller to the buyer.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.
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https://learn.financestrategists.com/quizzes/fill-in-the-blank/tb-fib/
https://learn.financestrategists.com/quizzes/mcqs/tb-mcqs/
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