ACCOUNTANCY
Assignment – Accounting Equation
Level 1: Fill ups and True/False
A. Fill in the blanks:
1. The accounting equation is __________ = Liabilities + Capital.
2. Goods purchased on credit will increase __________ and __________.
3. Withdrawals by the owner are also known as __________.
4. Payment of rent will decrease __________.
B. True or False:
1. The accounting equation always remains balanced. ( )
2. Assets = Liabilities − Capital. ( )
3. Profit increases the capital. ( )
4. Purchase of goods for cash affects both assets and liabilities. ( )
Level 2: Multiple Choice Questions (MCQs)
1. Which of the following transactions will increase both assets and liabilities?
o (a) Purchase of goods for cash
o (b) Purchase of goods on credit
o (c) Withdrawal of cash by the owner
o (d) Rent paid in advance
2. If the total assets are ₹80,000 and capital is ₹50,000, liabilities will be:
o (a) ₹30,000
o (b) ₹50,000
o (c) ₹80,000
o (d) ₹130,000
3. Rent paid will:
o (a) Increase assets
o (b) Increase liabilities
o (c) Decrease capital
o (d) Increase capital
4. If the liabilities increase and assets remain unchanged, the capital:
o (a) Increases
o (b) Decreases
o (c) Remains unchanged
o (d) Cannot be determined
Level 3: Assertion and Reason Questions
Directions: Each question consists of an Assertion (A) and a Reason (R). Choose the correct option:
1. Assertion (A): Capital is treated as a liability in the accounting equation.
Reason (R): Owner and business are considered separate entities in accounting.
o (a) Both A and R are true and R is the correct explanation of A.
o (b) Both A and R are true but R is not the correct explanation of A.
o (c) A is true, R is false.
o (d) A is false, R is true.
2. Assertion (A): The accounting equation helps to detect errors in recording transactions.
Reason (R): If the accounting equation does not balance, there may be an error in recording.
o (a) Both A and R are true and R is the correct explanation of A.
o (b) Both A and R are true but R is not the correct explanation of A.
o (c) A is true, R is false.
o (d) A is false, R is true.
Level 4: Accounting Equation Format Questions
A. Prepare Accounting Equation on the basis of the following transactions :
1. Started business with ₹2,00,000.
2. Purchased furniture for ₹30,000 in cash.
3. Bought goods on credit from Ram ₹25,000.
4. Sold goods costing ₹10,000 for ₹15,000 in cash.
5. Paid ₹5,000 to creditors.
B. Show the effect of the following transactions on the Accounting Equation:
1. Commenced business with cash ₹1,00,000
2. Purchased goods for cash ₹40,000
3. Sold goods (cost ₹20,000) for ₹30,000 in cash
4. Paid salary ₹5,000
5. Paid electricity bill ₹1,000
6. Withdrew ₹10,000 for personal use
7. Bought goods from Raj on credit ₹15,000
Prepare a table showing changes in Assets, Liabilities, and Capital after each transaction.
Level 5: HOTS Questions
1. Prepare Accounting Equation on the basis of the following transactions :
a. Started business with cash ₹ 2,25,000 and cheque of ₹ 1,25,000 to open a bank
account.
b. Purchased goods for ₹ 50,000 on credit and for cash ₹ 40,000.
c. Goods costing ₹ 15,000 sold at a profit of 20% (on cost) out of which ₹ 5,000
received in cash.
d. Paid to creditor in full settlement at a discount of 10%.
e. Interest on capital ₹ 2,000.
f. Salary payable ₹ 3,000 and Commission receivable ₹ 6,000.
g. Rent received in advance ₹ 4,000 and Prepaid interest ₹ 2,000.
h. Goods costing ₹ 8,000 were destroyed by fire.
i. Purchased computer for personal use ₹ 10,000.
2. Give an example for each of the following :
A. Increase in one asset, decrease in another asset.
B. Decrease in capital, decrease in asset.
C. Increase in liability, increase in asset.
D. Increase in asset, increase in capital.
