Accounting Equation

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Capita QUESTIONS
(Higher Order Thinking Skills (HOTS) Questions)
Q. 1. Do you think that a
9gT8d) jo (o)
nitaso908 doidW (ui)
transaet ion can break the Acounting Fuation2idsil (o)
0 and Ans. No, a transaction can only chnnge the
Accounting quation hut cannot break
eapi0,000ta Q. 2. Goods costing ? 10,000 have been
be shown in the
Accounting Equation?
sold for cash at 25% profit. How wili the
Ans. lncrease cash by ? 12,500; Decrease stock
Q. 3. The capital of a business is
tránsactio
by 10,000: and Increase capital by
2.500.
2,00,000 and outside liabilities are 1,50,000. Caleulate
the total assets of the business.
Ans. 3,50,000 (Capital + Outside Liabilities = Assets).
Q. 4. If total assets of abusiness are
ofts Ans.
liabilities.
1.30,000 and capital js 80.000. calculate the outaide
50,000 (Outside Liabilities = Total Assets - Capital).
Q. 5. If total assets of the business are 4,50,000 and outside liabilities are 2,00,000,
Of calculate owner's equity. (MSE Chandigarh)
Ans. Assets = Owner's Equity + Liabilities
4,50,000 = Owner's Equity + 2,00,000
000 Owner's Equity =2,50,000.
Q. 6. Jaspal has purchased a car for 5,00,000 which he got financed from a Bank to the
an extent of 4,00,000. How will it be shown in the accounting equation?
Ans. 1,00,000 will be deducted from Asset (Cash/Bank): Asset (Car) will be shown at
I 5,00,000 and Bank Loan (on the Liabilities side) will be shown at 4,00,000.
a Q7. Amit has incurred an expense of 5,000 towards repairs. However, the amount is yet
to be paid. How will it be shown in the accounting equation?
n
Ans. It is an outstanding expense. It will be shown in the accounting equation as deduction
from capital and as an Outstanding Expense on the Liabilities side.
Q. 8. Show the accounting equation if there are no liabilities.
Ans. Assets = Capital.

Multiple Choice Questions (MCQs)

Select thecorrect alternative:
) Which of the following equation is correct?
(a) Assets + Capital = Liabilities (b) Assets - Liabilities = Capital
(c) Assets + Liabilities = Capital (d) None of these.
(ii) Which of the following is correct?
Assets Liabilities Capital
() 7,85,000 ?1,25,000 { 6,60,000
(6)R 8,20,000 2,80,000 R11,00,000
(e) 9,55,000 ? 1,15,000 7 8,20,000
T6,54,000 ? 1,12,000.
(d) 5,42,000
 5.16 Double Entry Booki
(i) Amount withdrawn by proprictor lor personnl use will ... (Cash and Capital. CBSEX
(a) Increase (b) Decrease
(c) Not Change (d) Nonc of these.
(i) Which accounting equation is incorrect out of the
following?
(o) Liabilitics = Assets Capital (b) Assets = Liabilities -
(c) Captal = Assets - Capital
Liabilities (d) Assets = Liabilities + Capital
() The liabilities of a firm are
3,000; the capital of the proprietor is ?
assets are 7,000. The toa.
(a)7.000. (6) 10,000.
(c) 4,000.
(d) None of these.
() X commenced business on 1st
2014, his April, 2013 with a capital of ?
assets were worth 8,00,000 and 6,00,000. On 31st Mark
(a) 7,50,000 liabilities? 50,000. Find out his closing capital
(c) 5,50,000 (6) 2,00,000
(vù) An increase in one asset is (d) None of these.
(a) accompanied by (KVS,
Decrease in another asset.
(c)
Increase in capital. (6) increase in a
() All of these.
liability.
(viii) Decrease in one
(a)
liability may lead to
Decrease in an asset.
(c) Either (o) or (6). (6) Increase in another
(ix) (d) None of these. liability.
Purchase of machine by cash means
(a) Decrease in asset
and decrease in
(6) Increase in
asset and decrease in lhability.
(c) Increase in asset asset.
and decrease in iability.
(d) Decrease in
asset and increase in
(c) Payment to a creditOr means capital.
(a) Increase in
asset and decrease in
(b) Decrease in
asset and liability,
(c) decrease in liability.
Decrease in asset and increase
(d) Increase in asset and increase inin liability.
liability,
[Ans.: () (6); (i0) (a); (iü) (b): (iv) (b): (o) (b): (v) (o:
ojective Type Questions (vii) (d); (vii) (c): (ix) (6); (*) (6).
State
 income. (Delhi
Asa ve sales corret)
tadded
isWh ot
credited correct? proprietor's
payment. cheque.In Entity
Keeping-CBSEY
lehitcd
gone
why? chairs. the it is an owner. lhability. increase
in
liability.
has credited. madeIs business or
capital. it Account
asset.
Business
Ig Why?which
cash andofissue and yet Is its
as8t cash Account. capital?from in in in
Book cash, credit tables not proprietor's
proprietor'sLiabilities increase decrease
credited. cash, by is has of entity decrease
Entry debited? asset
n
increase
for
youmade recorded. because
Double benefit in in payment
of Ajay Liabilities and
incurred will an sales
credited.been becáuse in liability
distinct an a (6)
an a
is
Account. be
the accountbeingagainstwhy? the the balance
is
same (6) (d) (d)
an must has
QUESTIQuestions)
ONS and received against is
expense is
Account
payment and
in by
increase
liability earned
the Account
or
are and
Asset.assetAccount,
it Account
Which advance
treated in asignify samecapital
separate equity.
asset balance Capital
Bank a
whyinincreasehas credited.an chegue.
because as an profit may creditand
Liability
firm or an Cash receivedbe.treated
reduced. be means a proprietor's
(HOTS)nsset, cashof adyance net
a
signifies
balance
in is
liability )
(MCQs)
the purchase
Thus, credited increase and business liability.
an means means is in purchased aissuing furniture, business
Skillsof ain liability decreased. is thisshould because credit
the
debit asset, asset.
for the
purchaseincrease bank always which Questions
concept,
credit
Thinking asset liability On by be received
should the A of alternative:
correct in in in in
thus, asset. met will in correct. rules increase
increase decrease
increase
an is in
balance by correct balance on and the (ii)
Credit
means
an made,asset has is Account dealer earned
howadvance side (i)
Debit
means
Orderarecord
ofPurchasein
record
Increase an 1s liability capital.
the side.
Credit
Ans. the debitto Choice
an
3.
Q. cash not
a opinion
result, is Acredit the are According
of
an an an a
be :WhenCash it is
(Higher
To i.e., Bank Ajay, The ProfitYes, it Name WhyRules
To to
A No, (Multiple (a) (c) (a) (c)
1. Ans, qZ.Ans. Ans. Q.4.Ans. 5. the
Select
6.14 Q. Ans. Q.6. Ans. 7. Ans.8. Q.9.Ans.
Q. Q. Q.
 (c).]
6.15 ()
(a);
(in)
(b);
Received
Discount
DiscountAccount.
Allowed Liability Account.
Ale Capital
(6) (viil)
to these.
ofNone these.
ofNone
theae
ofNonecredited Realthese. Real
Loaa Account.
(b) Account. (6) these.
these. Account.
Real
Alc
Capital
(h) (b);
Alc
Cash & of of of (vii)
Profit None None Nonebalance?
ia (a);
proprietor
(hy (d) (d) (d) (b) (d) (d) (6) (d) (b) (d) (d) (vi)
credit (a);
to ()
debited the as (c);
hy a shown
has
business (iv)
ond
Credit is accounts
is a (6);
cnsh Account isAccount (iüi)
from
ofDebit for (a) Account.
Nominal
(c) a Acount.
Account.
Personal (a) Account.
Nominal
(c)
Personal Account.
Personal
(a) Account.
Nominal Outward
(c) followingCarriage
(c) Account.
Revenue
(c) (c)(6):
(a) Account.
Liability
Account.
Revenue
Rnm is a Inward
Carriage Account.
Capital
(a)
cashA/e.
Drawings
(a) Account is Capital Creditors (i)
a account
Rules to
Accounting is (a);
goods Ale.(c) of
Sales (c) account
Ae.
Cash the
Withdrawal of ()
Procedures
g Ranm.
(a) Drawings Goodwill of
of Which Balance Sundry [Ans.:
ale Bank
(a)
(iii) i) () (v) (vi) (viüi) (ix) (x)
 Ouestions (MCQs))
Multiple Choice
allernative:
Select the correct when goods are sold
prepared (6) onCash.
memo is
() Cash
(a) oncredit. (d) None of these.
Both(a) and (6). goods
(c)
source voucher 1or purchaser of
is a
(i) Cash memopurchases. (6) for credit purchases.
(a) for cash (d) for cash sales.
sales.
(c) for credit goods
sourceevoucher for
seller of'goods
(üi) Invoice is a (b) for credit purchases.
sales.
(a) for cash (d) for cash purchases.
(c) for credit sales.
for purchaser of goods
(iv) Invoice is a source voucher
(6) for cash sales.
(a) for cash purchases.
(c) for credit sales.
(d) for credit purchases.
from
(v) Accounting voucher is prepared
(a) source voucher. (6)) Jounal entry.
(c) Both (o) and (b). d) None of these.
(vi) If purchaser of goods returns them, he will prepare
(a) Credit Note. (6) Debit Note.
(c) Both (a) and (b). (d) None of these.
(vii) If seller receives back the goods sold, he will prepare
(a) Credit Note. (6) Debit Note.
(c) Both (a) and (6). (d) None of these.
(vii) Voucher is prepared for
(a) Cash and Credit purchases. (6) Cash and Credit sales.
(c) Cash received and paid. (d) All of these.
 origin of Transactions--Source Documents ond Preparation of Vouchers 7.15

(ix) Cash Memo is

(a) a source voucher. (b) anaccounting voucher.
(c) Neither (a) nor (6). (d) Both (a) and (b).
(r) Invoice is a source voucher for
(a) Cash purchases. (6) Credit purchases.
(c) Both (a) and (b). (d) Neither (a) nor (b).
(x) Books of Account are written on thebasis of
(a) Source Document. (6) Accounting Vouchers.
(c) Both (a) and (b). (d) None of these.
(ri) Credit Note is prepared
(a) when credit is given to the account.
(6) when debit is given to the account.
(c) Both (a) and (b).
(a) None of the above.
(i) When goods are sold on credit, the seller prepares
(a) Cash Memo. (6) Invoice.
(c) Accounting Voucher. (d) None of these.
(riu) When goods are purchased against cash, the purchaser will get
(a) Cash Memo. (6) Invoice.
(c) Accounting Voucher. () None of these.

(zu) Transfer vouchers are prepared to record

(a) cash transactions. (6) non-cash transactions.
(c) Both (a) and (b). (d) None of these.

(cui) Credit purchase of furniture is recorded through

(a) Transfer voucher, (b) Cash voucher.
(c) Debit voucher. (d) Credit voucher.
[Ans.: () (b); (i1) (a); (iüi)(c); (iv) (d); (v) (a); (vi) (6); (vi) (a): (viim) (d);
(ix) (a); («) (b); (*i) (b); (xii) (a); (xiii) (b); (xiv) (a); (u) (6): (rvi) (a).]

Objective Type Questions)

I. State whether the following statements are True or False:
) Credit Vouchers are the documentary evidence of the cash payments.
() Transfer Vouchers are prepared to record the non-cash transactions.
sold for cash.
( ) Cash Memo is prepared by the seller when the goods are
having taken place.
(0) AVoucher is a documentaryevidence of the businesstransactions
ade in the bank
 donation?
and oftime
entry.secondary
entry
secondary cash Alc. to
the credited
Received
at giving
filled Journalising. Donation
Ac.
6)
of Balancing.
b) is Capital
(6)
Ale.
book ld
Costing. on Alc. Stock
Discount (b)
Cash (d)
Alc. proprietor(d)
Bank
Alc.
is (d)
Rulig.
(d)
both Journal credited
a called
(6) (6) () to
the Journalis be debited the
in will by
Column accounts is business
entry. a cash
in
entry. transaction for
primary Folio) from
following
alternative: final Ram
called Ledger (a)
Journalising. (c)
Purchases
Alc. cash
to (a)
Dravwings
Alc.
of of of
is bookbook (c) of
Posting. (a) Transfer.
(c)
Posting. the (a)
Cash
Alc. goods Sales
(c)
Alc. WithdrawalAlc.
(c)
Cash
Jourmal (i.e., Recording
correct of Ram.
(a)
a a L.F. Which of
(a) (c) Sale
the
(i) (i) (ui)
Select (iv) (u) (vi)
 20%. 10,000
Discount
will Amar? normal fiom (c); (c).]
8.45
(vi) (xii)
Acrount received
of with from (6): (b);
Discount The
Trade
paid respectively3.000
use.
(v) (ri)
Purchases Alc. was (a);
20%Anil this? (a);
Trade own Recovered rupee (iv)
of to (r)
leasdavs. his
record credited
less credited (d) purchase
300.900.
40,000, (b); (d);
cach period.
30 from 1,000. 1,500. a
Alc.
Debtors
(d) (iüi)
cach correctly Debts in (ix)
?(/) 50 within
60,000.
40),000 40,000, 1,500. are (6) 14,000.
paise 10,000.
50
a davshe cash 3,000.3,000.
stock 1,000.
by
(c): (a);
will 3,000.3,000. by by received
Bad 70 debited (ii) (vii)
0 made30 record from would Alc
Pens ? Alc ? insolvent. (a);
Pens (h) afterAccount.
(b) by by by by (b) (d)
to by by Alc Alc 1,000 Ale Purchases
Purchases Alc (i) (b);
by is
Roller entries now be
Gel
Roller amount,
pavment entryAmarAlc Cash 1,500. Sales Drawings [Ans.:
(vii)
debited Received Purchase
and will
Gell Purchases ?costing Journal
became
correct
Cr. Cr. Cr. Cr. Cr. Account
balance off Alc.
Addbe Addif is
will Discount
and Cr. and goods goods andand and Cr written Income 20,000
1Discount is following
1,0(00 1,000 Alc Cr. and Alc
(c) following
1,200.
40,000, Alc Ale Alc and Debts
Account and Obj
Qu
Typ
tookthe A/c.
Alc Purchases
Nil.
40,000, and
Purchases Drawings
DrawingsAle earlier Miscellaneous
Drawings
purchased
Anil purchased,
daysand of owed Bad
estate.
his
45,000. Cash
50,000. the AmarCash trader
pricethe Sales Debts 20,000.
?(a) 6,000.
Purchases 30 debited Debts ?(c)
of of who
3% Bad
Anil with1n WhichDr. Dr. Dr. Dr. soleselling WhichDr. Dr. Dr. Dr. Lalit,
and Bad
(a) (c) () be (a) (a) (6) (c) (d) A (a) (6) (c) () (a) (c)
Journal(vi) (ix) (x) (ci) (3ii)
 transartions, ledger
is
called
issecond
stae
transar
recorded
the
of accounts the
(Posting) to
Financial
Statements. Journal
ledger maintained.
Transfer
Trial
Balance.
the the
maintained.
Statements.
from Costing.
maintained.
maintained. (b)
Posting.
is are
books
Balance. transactions
Accounts
these are
Financial
(6) (d) (a)
Journal.
in Ledger. areare Accounts
transactions Trial from Nominal
Accounts
Accounts
(MCQs) the
means
in in in in prepared transferring
transactions
transactions
transactions
transactions which Nominal
of stage. and
Recording Questions
transaction Nominal
Personal
first
the alternative: in
is Personal
and (a)
Journalising.
Account book (c)
Balancing.
Vouchers. of
entering
entering
entering (c) a andand Personal
enteringJournal. process
Choiceof
is Real Real,
Stage
Recording
of correct
Posting Ledger LedgerReal
The
Multiple (a) (6) (C) (a) (a) (a) (b) (c) (d)
the
() (ii) (iüi) (iv)
Seleci
 9.17
Ledger

(v) What typeof Ledger Aceontsare not carried torwnrd to nexi year?
(a) PersOnal Acvonts tb) Real Accounta
(c) Nominal Acounts (d) Al of these
(v) What type of followng accounts will have debit balanee only?
(a) Personal Aceonts (b) Renl Accounts
(c) Nominall Acunts () Alof these.
(rin HoW many nccounts are affected in a transaction?
(a) Omly one (b) Only two
(c) A least two (d) 'T'wo or three
( ) When goods are lost by fire then LOSs of (Goods hy Fire Account is debited with
(a) Cost of goods sold.
(b) Cost of goods sold plus Gross Profit.
(c) Cost of goods sold less Gross Profit.
(d) Cost of goods purchased.
(ix) Which of the following expense is not a revenue expense?
(a) Salary (b) Electricity
(c) Water (d) Repair of second-hand machinery purchased
[Ans.: () (6); (ii) (c); (iü) (c); (iv) (b); (u) (c); (vi) (b);
(vii) (c); (viii) (d); (ix) ().]