Accounting Equation Challenge
1. What is the basic accounting equation?
Assets = Liabilities - Equity
Assets = Liabilities + Equity
Liabilities = Assets + Equity
Equity = Assets + Liabilities
2. Which of the following is an Asset?
Accounts Payable
Owner Capital
Accounts Receivable
Utilities Expense
3. If a business has Assets of 10,000 and Liabilities of 4,000, what is the Equity?
14,000
4,000
6,000
10,000
4. In the expanded accounting equation, which item directly decreases Equity?
Revenues
Owner Capital
Net Income
Expenses
5. Choose the correct formula for the expanded accounting equation:
Assets = Liabilities + Owner Capital + Owner Drawings + Revenues + Expenses
Assets = Liabilities + Owner Capital - Owner Drawings + Revenues - Expenses
Assets = Liabilities - Owner Capital + Owner Drawings - Revenues + Expenses
Assets = Liabilities + Owner Capital - Owner Drawings - Revenues + Expenses
6. When an owner invests cash into the business, what is the impact on the equation?
Assets increase and Liabilities increase
Assets increase and Equity decreases
Assets increase and Equity increases
Liabilities decrease and Equity increases
7. A business purchases equipment on credit. How does this affect the basic accounting equation?
One Asset increases, another Asset decreases
Assets increase and Liabilities increase
Assets increase and Equity increases
Liabilities increase and Equity decreases
8. What effect does earning revenue on account (sending an invoice to a customer) have on the expanded equation?
Cash increases and Revenue increases
Accounts Receivable increases and Revenue increases
Accounts Payable increases and Revenue increases
Accounts Receivable increases and Revenue decreases
9. If a business pays cash for this month's utilities bill, which two categories are affected?
Assets decrease and Expenses increase (reducing Equity)
Assets decrease and Liabilities decrease
Liabilities increase and Expenses increase
Assets increase and Equity increases
10. Owner drawings represent:
A business expense that reduces profit
A liability that the owner owes back to the company
A withdrawal of assets by the owner for personal use, reducing equity
An additional capital investment by the owner
11. A company collects 500 cash from a customer who owed money on account. What is the net impact on total assets?
Total assets increase by 500
Total assets decrease by 500
Total assets stay the same (one asset increases, one asset decreases)
Total assets stay the same, but liabilities increase
12. If Liabilities are 15,000, Capital is 20,000, Drawings are 2,000, Revenues are 8,000, and Expenses are 4,000, what are total Assets?
37,000
41,000
39,000
45,000
13. Which of the following statements is always true regarding the accounting equation?
Liabilities must always equal Equity
Revenues must always exceed Expenses
The equation can temporarily be out of balance during a business day
The equation must balance after every single transaction
14. When a business pays off an existing account payable balance with cash, how does it affect the equation?
Assets decrease and Liabilities decrease
Assets decrease and Equity decreases
Liabilities decrease and Equity increases
One Liability increases, another Liability decreases
15. What category do resources owned by a business to help generate future profits fall into?
Revenues
Capital
Liabilities
Assets
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