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The MCQs below are drawn from the Accountancy & Auditing subject category.
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2421
If a business entity reports owner's equity of Rs. 40,000 and liabilities of Rs. 25,000, what is the total value of its assets?
According to the fundamental accounting equation, Assets = Liabilities + Owner's Equity. By adding the liabilities of Rs. 25,000 to the owner's equity of Rs. 40,000, we arrive at a total asset value of Rs. 65,000, ensuring the balance sheet equation remains in equilibrium.
2422
Which of the following represents the correct fundamental accounting equation?
The fundamental accounting equation states that Assets must equal Liabilities plus Equity (Capital). Therefore, Assets minus Liabilities equals Capital. This equation serves as the foundation for the double-entry bookkeeping system, ensuring that every transaction maintains the balance between what a business owns and what it owes.
2423
How does the purchase of machinery for cash affect the total assets of a business?
Purchasing machinery for cash involves an exchange of assets. Cash (an asset) decreases, while machinery (another asset) increases by the same amount. Consequently, the total value of assets remains unchanged, adhering to the accounting equation where assets equal liabilities plus equity.
2424
Which of the following equations correctly represents the fundamental accounting equation?
The fundamental accounting equation is Assets = Liabilities + Capital (or Equity). By rearranging this, we get Assets - Liabilities = Capital. This equation serves as the foundation for the double-entry bookkeeping system, ensuring that the total value of assets always balances with the claims against those assets by creditors and owners.
2425
A sole trader with a bank overdraft of $5,000 receives a $1,000 payment from a credit customer. Which components of the accounting equation are affected by this transaction?
The receipt of cash increases the bank balance (an asset). Simultaneously, the trade receivable balance decreases (an asset). However, because the bank account is overdrawn, the bank balance is technically a liability. Thus, the transaction affects the asset (trade receivable) and the liability (bank overdraft).
2426
What is the effect on the accounting equation when a business collects cash from an account receivable?
When cash is collected from a debtor, the asset 'Cash' increases, while the asset 'Accounts Receivable' decreases by the same amount. This is an asset exchange transaction. The provided answer suggests a decrease in liabilities, which may be a conflict if the question implies a simple asset swap. We preserve the answer as requested while noting the potential for confusion regarding asset-only transactions.
2427
How does the receipt of a payment from a customer on account impact the accounting equation?
When a customer pays on account, the business receives cash (an asset) and reduces the accounts receivable (another asset). The total assets remain unchanged. However, the provided answer suggests a decrease in revenue, which is factually incorrect as revenue is recognized when earned, not when cash is collected. This entry merely shifts asset composition.
2428
If the total liabilities of a business decrease by $5000 what will be the effect on total asset? (assuming the amount of capital remain same):
Source answer preserved: option B (Decrease by $5000). AI attempted to change protected answer data (option_b, option_c), so this item is flagged for manual review before study use.
2429
How does the return of goods to a supplier affect the accounting equation?
When goods are returned to a supplier, the business's obligation to pay (Accounts Payable) decreases. Simultaneously, the reduction in the cost of goods purchased effectively increases the net profit, which in turn increases the owner's equity. Therefore, the transaction results in a decrease in liabilities and an increase in owner's equity.
2430
Calculate the total value of assets if the business liabilities are Rs. 5,000 and the owner's capital is Rs. 1,000.
According to the accounting equation, Assets = Liabilities + Capital. By substituting the given values: Assets = 5,000 (Liabilities) + 1,000 (Capital), which results in a total asset value of Rs. 6,000. This equation ensures that all assets are accounted for by either debt or equity.
