Mastering the Accounting Equation
Test your knowledge of the fundamental accounting equation and how business transactions impact financial balance.
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Quiz Questions & Answers
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Question 1: What is the foundational formula that represents the accounting equation?
Assets = Liabilities + Equity
Question 2: If a business purchases equipment by paying cash, what happens to the total assets?
Total assets remain unchanged
Question 3: How does taking out a short-term bank loan affect a company's liabilities?
Liabilities increase
Question 4: Which financial element represents the owner's residual claim on the assets of the business?
Owner's equity
Question 5: When a company earns revenue through the sale of services, what is the direct impact on equity?
Equity increases
Question 6: If a company pays its monthly rent expense with cash, how does this affect the accounting components?
Assets and equity both decrease
Question 7: What term is used for the cash or assets withdrawn by the owner for personal use?
Drawings or dividends
Question 8: If total liabilities equal $40,000 and total equity equals $60,000, what is the total value of assets?
$100,000
Question 9: Why must the accounting equation always remain balanced?
Every transaction has a dual effect on the financial position
Question 10: If total assets are $150,000 and owner's equity is $90,000, what is the amount of total liabilities?
$60,000