ACCOUNTING EQUATION
Multiple Choice Questions 5
1. During an accounting period, a company’s assets increase by ₹ 50,00,000.
Liabilities decreased by ₹ 10,00,000; Capital will
i) Decrease by ₹ 40,00,000
ii) Increase by ₹ 40,00,000
iii) Decrease by ₹ 60,00,000
iv) Increase by ₹60,00,000
2. The accounting equation signifies that:
i)Resources are allocated at purchase price
ii)Owner’s provide money to business
iii)Resources available in the business are equal to the sources of business.
iv)Resources available in the business are not equal to the sources of business.
3. Decrease in one liability may lead to
i) Decrease in an asset
ii) Increase in another liability
iii) Either (i) or (ii)
iv) None of these
Answer iii) Either (i) or (ii)
4. Purchase of machine by cash means
i) Decrease in asset and decrease in liability
ii) Increase in asset and decrease in asset
iii) Increase in asset and decrease in liability
iv) Decrease in asset and decrease in liability
5. Payment to a creditor means
i) Increase in asset and decrease in liability
ii) Decrease in asset and decrease in liability
iii) Decrease in asset and increase in liability
iv) Increase in asset and increase in liability
6. Mohit has the following transactions, prepare accounting equation: 8
a) Business started with cash ₹ 1,75,000
b) Purchased goods from Rohit ₹ 50,000
c) Sold goods on credit to Manish (costing ₹ 17,500) ₹ 20,000
d) Purchased furniture ₹ 10,000
e) Cash received from Manish ₹ 20,000
f) Cash paid to Rohit in full settlement ₹ 48,500
g) Rent paid ₹ 1,000
h) Cash withdraw for personal use ₹ 3,000
7. Show the effect of the following transactions of M/s Royal Traders: 6
a) Started business with cash ₹ 1,20,000
b) Purchased goods for cash ₹ 10,000
c) Rent received ₹ 5,000
d) Salary outstanding ₹ 2,000
e) Sold goods for cash (costing ₹ 5,000) ₹ 7,000
f) Goods destroyed by fire ₹ 500
8. Show the effect of following transaction on the accounting equation: 16
a. Manoj started business with cash ₹2,30,000, Goods ₹1,00,000 and,
Building ₹2,00,000
b. He purchased goods for cash ₹50,000
c. He sold goods (costing ₹20,000) ₹35,000
d. He purchased goods from Rahul ₹55,000
e. He sold goods to Varun (costing ₹52,000) ₹ 60,000
f. He paid cash to Rahul in full settlement ₹53,000
g. Salary paid by him ₹20,000
h. Received cash from Varun in full settlement₹ 59,000
i. Rent outstanding ₹3,000
j. Prepaid Insurance ₹2,000
k. Commission received by him ₹13,000
l. Amount withdrawn by him for personal use ₹ 20,000
m. Depreciation charge on building ₹ 10,000
n. Fresh capital invested ₹ 50,000
o. Purchased goods from Rakhi ₹ 10,000
