MCQs on Accounting Equation

Accounting Equation is the basis for preparing a Balance Sheet. It helps companies in preparing financial statements and ensures that a firm’s assets are equal to the sum of their liabilities and stockholder’s equity.

Below is a list of multiple-choice questions and answers on Accounting Equation to gain a better understanding of the topic.

1. Which of the following steps are used to calculate the accounting equation?
   1. The total assets of a business are entered in the company’s Balance Sheet on the assets side
   2. The total liabilities are listed on the Balance Sheet separately on the liabilities side along with the stockholder’s equity
   3. The total liabilities are added to the stockholder’s equity
   4. All of the above

Answer: d

2. Which of the following is the correct formula for the Accounting Equation?
   1. Assets = Liabilities – Shareholder’s Equity
   2. Assets = Liabilities + Shareholder’s Equity
   3. Liabilities = Assets + Shareholder’s Equity
   4. Shareholder’s Equity = Assets + Liabilities

Answer: b

3. Which of the following systems is the Accounting Equation based on?
   1. Triple-entry system of accounting
   2. Single-entry system of accounting
   3. Double-entry system of accounting
   4. None of the above

Answer: c

4. Which of the following transactions would be recorded in the accounting system based on the money measurement concept?
   1. The value of plant and machinery of a company
   2. The health of the Chief Executive Officer of an organisation
   3. The quality of a company’s product or service
   4. None of the above

Answer: a

5. Which of the following statements is true about the accounting equation?
   1. The accounting equation represents that the sources in a business are not equal to the resources of that business
   2. The accounting equation represents that the sources in a business are equal to the resources of that business
   3. The accounting equation represents that the resources are allocated to the business at cost price
   4. None of the above

Answer: b

6. The assets which are convertible into cash or cash equivalents within a year are known as _________.
   1. Fixed assets
   2. Current assets
   3. Tangible assets
   4. None of the above

Answer: b

7. Any business event that is measurable in terms of money and can also be recorded in the account books is called _________.
   1. Assets
   2. Owner’s equity
   3. Transaction
   4. None of the above

Answer: c

8. Which of the following items are considered as revenue for a business?
   1. Cash purchases only
   2. Cash sales only
   3. Credit purchases only
   4. Both cash sales and credit sales

Answer: d

9. Which of the following accounts will be affected by a transaction where the company receives from a debtor?
   1. Owner’s equity and cash
   2. Owner’s equity and debtors
   3. Debtors and cash
   4. None of the above

Answer: c

10. Which of the following concepts means that the identity of a business is separate from its owner?
    1. Going concern concept
    2. Business entity concept
    3. Realisation concept
    4. None of the above

Answer: b

Also See:

• Difference between Fixed Assets and Current Assets
• Difference between Balance Sheet and Financial Statement
• Difference between Fixed Capital and Working Capital