Accounting Basics Quiz

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Questions and Answers

What is the effect of services rendered for cash on financial accounts?

Increase in fees earned and a decrease in equity

Decrease in cash and an increase in fees earned

Increase in cash and a decrease in capital

Increase in cash and an increase in fees earned (correct)

What happens to financial elements when a company pays a wage?

Increase an asset, increase owner's equity

Decrease an asset, decrease a liability

Decrease an asset, decrease owner's equity (correct)

Increase an asset, increase a liability

What is the outcome of recording a debit to Consultant Expense and a credit to Accounts Payable?

Increase a liability, increase owner’s equity

Decrease an asset, decrease a liability

Decrease an asset, decrease owner's equity

Increase a liability, decrease owner's equity (correct)

Which of the following actions leads to an increase in owner's equity?

Revenue Signup and view all the answers

What is the result of an owner contributing a personal car to the business?

Increase an asset, increase owner's equity Signup and view all the answers

How does the payment of an expense affect the financial statements?

Decrease an asset, decrease owner's equity Signup and view all the answers

What is the impact on financial statements when a liability is incurred?

Increase both an asset and a liability Signup and view all the answers

What is likely to happen when a firm generates revenue?

Increase in assets and owner's equity Signup and view all the answers

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?

Increased by Rs.10 million Signup and view all the answers

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?

Machine increased by Rs.1,000,000 and liabilities increased by Rs.800,000 while cash decreases by Rs.200,000 Signup and view all the answers

What happens to total assets when machinery is purchased for cash?

Keeps total assets unchanged Signup and view all the answers

What is the result of investing cash into a business?

Increase in cash and an increase in equity Signup and view all the answers

After a company purchases machinery and makes a down payment, how is the remaining liability classified?

As a current liability due within a month Signup and view all the answers

When liabilities are greater than assets, what does this indicate about the owner's equity?

It is negative Signup and view all the answers

What impact does taking a loan to purchase equipment have on the company's balance sheet?

Assets increase and liabilities increase Signup and view all the answers

How does paying off a liability affect the financial statements?

Decreases both assets and liabilities Signup and view all the answers

What does the accounting equation express?

The total value of a company's assets, liabilities, and owner's equity. Signup and view all the answers

Which type of transaction is characterized by an immediate cash payment for goods or services?

Simple transaction Signup and view all the answers

What type of transaction typically affects a company's financial position for a long term?

Capital transaction Signup and view all the answers

What financial statement is primarily based on the accounting equation?

Balance Sheet Signup and view all the answers

What distinguishes ongoing transactions from one-off transactions?

Ongoing transactions are regular, while one-off transactions occur only once. Signup and view all the answers

Which type of transactions would include the payment of utilities or rent?

Revenue transactions Signup and view all the answers

What is a characteristic of complex transactions?

They require financing or credit arrangements. Signup and view all the answers

Which example represents a capital transaction?

Buying machinery for manufacturing. Signup and view all the answers

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.