Tag: usefulness of an accounting equation

Questions Related to usefulness of an accounting equation

The accounting equation is based on _________________.

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Going concern concept

  2. Dual aspect concept

  3. Money measurement concept

  4. Materiality concept

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Correct Option: B
Explanation:

Dual aspect is the foundation or basic principle of accounting. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places.

The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows :

Assets = Liabilities + Capital

In other words, the equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital(owners’ equity) and that of outsiders, as Liabilities(creditors equity).

A business entity has assets of $Rs. 2,60,000$ and liabilities of $Rs. 60,000$. Owner's equity in this case is__________. 

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. $Rs. 3,20,000$

  2. $Rs. 2,60,000$

  3. $Rs. 2,00,000$

  4. $Rs. 60,000$

Show answer
Correct Option: C

If outside liabilities and owners equity are added we get ______________.

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Total Liabilities

  2. Net worth

  3. Shareholders Fund

  4. Gross Block

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Correct Option: A

An increase in one liability may lead to _________________.

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Increase in another asset

  2. Decrease in liability

  3. Both (A) and (B)

  4. Either (A) or (B)

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Correct Option: D

Capital is the difference between.

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Income and expenses

  2. Sales and Cost of goods sold

  3. Assets and liabilites

  4. None of the above

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Correct Option: C

If assets are increased by 2,000 and liabilities are increased by 1,200. What will be the effect on business equity?

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. 800

  2. 2,000

  3. 3,200

  4. 1,200.

Show answer
Correct Option: A
Explanation:
The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows:
Assets = Liabilities + Equity ( Capital)
Equity = Assets - Liabilities
            = 2,000 - 1,200 
            = 800.

Sriram purchased a furniture for Rs. 6,000, the accounts affected from this transaction will be _________________.

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Capital account and cash account

  2. Furniture account and cash account

  3. Furniture account and capital account

  4. Capital account and bank account.

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Correct Option: B

Listed in random order are the balance sheet figures of Mr. Q as at 31st March, 2015.

Trade receivables Rs. $50,000$
Trade payables Rs. $30,000$
Building Rs. $90,000$
Capital Rs. $1,00,000$
Bank loan Rs. $40,000$
Inventories Rs. $10,000$
Cash Rs. $20,000$
Reserves Rs. $50,000$
Intangible assets Rs. $30,000$
Shares Rs. $20,000$
Equipment Rs. $40,000$
Retained earnings        Rs. $40,000$


Determine the owner's equity?

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Rs. $2,10,000$

  2. Rs. $1,90,000$

  3. Rs. $1,20,000$

  4. Rs. $1,70,000$

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Correct Option: B

Which of the following accounting equation is correct?

elements of book keeping and accountancy accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. Capital (Rs. $15,000$)$=$Fixed Assets(Rs. $12,000$) $+$ Cash ($4,000$)

  2. Trade Payable (Rs. $3,000$) $+$ Capital (Rs. $17,000$) $+$ Bills Payable (Rs. $4,000$) $=$Fixed Assets (Rs. $20,000$)

  3. Capital (Rs. $15,000$) $=$Cash ($3,000$) $+$ Fixed Assets (Rs. $9,000$)

  4. Trade Payable (Rs. $8,000$) $+$ Capital (Rs. $7,000$) $=$Fixed Assets (Rs. $8,000$)$+$ Cash at bank (Rs. $4,000$)$+$Cash (Rs. $3,000$)

Show answer
Correct Option: D
Explanation:

Accounting Equation :- Total Assets = Capital+ Liabilities 

                                    = 15000 = 15000
Option D is Correct

Absorption means __________.

elements of accounts accounting equation explain the concept of accounting equation usefulness of an accounting equation accounting equations and transactions

  1. charging overheads to cost centres

  2. charging of overheads to cost units

  3. charging of overheads to cost centres or cost units

  4. allotment of overheads to different departments

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Correct Option: B
Explanation:

According to Terminology of Cost Accountancy overhead absorption is defined as “the charging overheads to cost units by means of rates separately calculated for each cost centre. In most cases the rates are pre-determined”.