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Questions and Answers
What is the effect of services rendered for cash on financial accounts?
What is the effect of services rendered for cash on financial accounts?
What happens to financial elements when a company pays a wage?
What happens to financial elements when a company pays a wage?
What is the outcome of recording a debit to Consultant Expense and a credit to Accounts Payable?
What is the outcome of recording a debit to Consultant Expense and a credit to Accounts Payable?
Which of the following actions leads to an increase in owner's equity?
Which of the following actions leads to an increase in owner's equity?
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What is the result of an owner contributing a personal car to the business?
What is the result of an owner contributing a personal car to the business?
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How does the payment of an expense affect the financial statements?
How does the payment of an expense affect the financial statements?
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What is the impact on financial statements when a liability is incurred?
What is the impact on financial statements when a liability is incurred?
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What is likely to happen when a firm generates revenue?
What is likely to happen when a firm generates revenue?
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If the assets increased by Rs.7 million and the owner's equity decreased by Rs.3 million, what must have happened to the liabilities?
If the assets increased by Rs.7 million and the owner's equity decreased by Rs.3 million, what must have happened to the liabilities?
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What is the effect on the accounts when a machine is bought for Rs.1,000,000 with a down payment of Rs.200,000 and a remaining payment of Rs.800,000?
What is the effect on the accounts when a machine is bought for Rs.1,000,000 with a down payment of Rs.200,000 and a remaining payment of Rs.800,000?
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What happens to total assets when machinery is purchased for cash?
What happens to total assets when machinery is purchased for cash?
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What is the result of investing cash into a business?
What is the result of investing cash into a business?
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After a company purchases machinery and makes a down payment, how is the remaining liability classified?
After a company purchases machinery and makes a down payment, how is the remaining liability classified?
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When liabilities are greater than assets, what does this indicate about the owner's equity?
When liabilities are greater than assets, what does this indicate about the owner's equity?
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What impact does taking a loan to purchase equipment have on the company's balance sheet?
What impact does taking a loan to purchase equipment have on the company's balance sheet?
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How does paying off a liability affect the financial statements?
How does paying off a liability affect the financial statements?
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What does the accounting equation express?
What does the accounting equation express?
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Which type of transaction is characterized by an immediate cash payment for goods or services?
Which type of transaction is characterized by an immediate cash payment for goods or services?
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What type of transaction typically affects a company's financial position for a long term?
What type of transaction typically affects a company's financial position for a long term?
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What financial statement is primarily based on the accounting equation?
What financial statement is primarily based on the accounting equation?
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What distinguishes ongoing transactions from one-off transactions?
What distinguishes ongoing transactions from one-off transactions?
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Which type of transactions would include the payment of utilities or rent?
Which type of transactions would include the payment of utilities or rent?
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What is a characteristic of complex transactions?
What is a characteristic of complex transactions?
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Which example represents a capital transaction?
Which example represents a capital transaction?
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Study Notes
Cash and Capital Transactions
- Services rendered for cash lead to an increase in cash and an increase in fees earned.
- Paying wages to an employee decreases an asset (cash) and decreases owner's equity.
- Recording a Consultant Expense impacts financial statements by increasing liabilities and decreasing owner's equity.
Owner's Equity
- Owner's equity increases with revenue and decreases with expenses, drawings, or asset depreciation.
- Contributing personal assets (such as a car) to the business results in an increase in assets and an increase in owner's equity.
Accounting Equation Fundamentals
- The accounting equation (Assets = Liabilities + Owner’s Equity) ensures balanced financial statements.
- Changes in assets, liabilities, and owner's equity must always reflect this balance.
Classification of Business Transactions
- Transactions are classified as simple (immediate cash sales) or complex (credit purchases).
- One-off transactions occur once, while ongoing transactions happen repeatedly.
- Capital transactions have long-term impacts, while revenue transactions are routine, day-to-day activities.
Analysis of Liabilities and Equity
- If assets increase by Rs. 7 million and owner's equity decreases by Rs. 3 million, liabilities must increase by Rs. 4 million.
- Purchasing machinery has specific effects on balance sheet accounts; significant effects include increasing machinery assets and liabilities if on credit.
Machinery Purchase for Cash
- Purchasing machinery for cash results in unchanged total assets, as cash is exchanged for another asset.
- A down payment on machinery increases total assets (machine value) and increases liabilities correspondingly for the unpaid portion.
Cash Investment in Business
- Investing cash into the business results in an increase in cash and an increase in equity.
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Description
Test your knowledge of basic accounting principles with this quiz. You'll explore concepts such as cash transactions and revenue recognition. Perfect for beginners and first-year accounting students.