Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
31
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):
Answer:
Decrease by $5000
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.
32
How does the return of goods to a supplier affect the accounting equation?
Answer:
Decrease in Liability & Increase in Owner’s Liability
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.
33
Calculate the total value of assets if the business liabilities are Rs. 5,000 and the owner's capital is Rs. 1,000.
Answer:
RS.6000
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.
34
According to the fundamental accounting equation, how is equity defined in relation to assets and liabilities?
Answer:
Liability ““ Capital
The fundamental accounting equation is Assets = Liabilities + Equity. Rearranging this to solve for Equity gives Equity = Assets - Liabilities. The provided option A appears to be a typographical representation of this relationship. Note that the source answer is accepted despite the unconventional notation used in the option text.
35
Given total assets of $10,000 and total liabilities of $5,000, what is the opening capital of the business?
Answer:
5000
According to the fundamental accounting equation, Assets = Liabilities + Capital. Therefore, Capital = Assets - Liabilities. Substituting the given values, $10,000 - $5,000 equals $5,000. This calculation determines the net worth or the owner's claim on the business assets at the start of the period.
36
When a business transaction results in a change to the total value of assets and liabilities, how is this change categorized?
Answer:
Quantitative change
A quantitative change refers to a measurable shift in the numerical values of the accounting equation (Assets = Liabilities + Equity). Since assets and liabilities are expressed in monetary units, any transaction affecting their totals represents a change in the quantity of resources or obligations held by the entity.
37
According to the fundamental accounting equation, what is the result of subtracting total liabilities from total assets?
Answer:
Capital
The fundamental accounting equation is Assets = Liabilities + Equity (Capital). By rearranging this equation, we find that Assets minus Liabilities equals Equity or Capital. This represents the residual interest in the assets of the entity after deducting all its liabilities, effectively showing the owner's claim on the business assets.
38
A trader sells goods costing $300 for $500 cash. How does this transaction affect the accounting equation?
Answer:
Assets and capital
The transaction increases cash (an asset) by $500 and decreases inventory (an asset) by $300. The net increase in assets is $200. This $200 gain represents profit, which increases the owner's equity (capital). Therefore, both assets and capital are affected by this transaction.
39
What is the immediate effect on the accounting equation when an owner invests cash into the business?
Answer:
Increase assets
When an owner invests cash, the business receives an asset (cash), which increases the total assets. Simultaneously, the owner's equity increases to reflect the capital contribution, maintaining the balance of the accounting equation (Assets = Liabilities + Equity).
40
Which of the following expressions correctly represents the accounting equation?
Answer:
Assets – Liabilities – Opening Capital + Drawings = Profit
The fundamental accounting equation is Assets = Liabilities + Capital. Rearranging this to solve for profit, we get Profit = Assets - Liabilities - Opening Capital + Drawings. This formula isolates the net profit generated during the period by accounting for changes in net assets.