Very Short Answer Type Questions
Q1. Briefly explain the Accounting Equation.
Ans: The accounting equation is a mathematical equation which shows that the assets and liabilities of a firm are equal,
i.e., Assets - Liabilities + Capital. It is based on Dual Aspect Concept of Accounting.
Q2. What is the owner's equity?
Ans: Owner's equity means balance standing to the credit of Capital Account of the proprietor.
Q3. Give an example of decrease in an asset and decrease in a liability.
Ans: Cash paid to a creditor.
Q4. Give an example of a transaction where an asset will increase and also the liability.
Ans: Goods purchased on credit.
Q5. Give an example of a transaction where an asset and owner's capital will increase.
Ans: Capital introduced by the proprietor.
Q6. Give an example of a transaction due to which owner's capital and an asset will decrease.
Ans:Goods taken by the proprietor for personal use.
Q7. Which transaction decreases one asset and increases another asset?
Ans: Amount received from a debtor.
Q8. Give an example of a transaction which increases one liability and decreases another.
Ans: Acceptance of Bill Payable.
Q9. Give an example of a transaction which has effect on two items on the assets side.
Ans: Sales of goods on credit.
Q10. Indicate how Accounting Equation is affected if machinery is purchased for cash?
Ans: It will result in cash being reduced and Machinery Account being increased.
Q11. Indicate how Accounting Equation is affected if cash is received against services rendered?
Ans: Cash increases and so does the capital.
Q12. Indicate how Accounting Equation is affected if payment is made to a creditor?
Ans: Cash decreases and so does the liability (creditor).
SHORT ANSWER QUESTIONS
Q1. Prove that, “Accounting Equation holds good under all circumstances.” Give at least two illustrations.
Q2. Give two basic purposes of accounting equation.
Ans: (i) Since accounting equation is always equal it ensures the accuracy in recording of business transaction.
(ii) It helps in preparation of Balance sheet.]
Q3. Describe the fundamental accounting equation. How are revenue and expenses related to it?
Q4. Which of the following equations are correct?
I. Assets = Capital + Liabilities
II. Assets = Capital - Liabilities
III. Assets = Liabilities - Capital
IV. Capital = Assets - Liabilities
V. Capital = Assets + Liabilities
VI. Liabilities = Capital + Assets
VII. Liabilities = Capital - Assets
VIII. Liabilities = Assets - Capital
Ans: I, IV, VIII
Q5. The position of a business man on 30th June 1994 was as follows:- Cash Rs 5,000; debtors Rs 20,000; Machinery
Rs 60,000; stock Rs 25,000; capital ₹ 75,000. Calculate his liabilities.
Ans: Rs 35,000
[Hint. Liabilities = assets- capital]
Q6. What entry (debit or credit) would you make to
(a) increase in revenue
(b) decrease in expense,
(c) record drawings,
(d) record the fresh capital introduced by the owner. (Delhi 2008)
(a) increase in Revenue : Credit
(b) Decrease in expense : Credit
(c) Drawings : Debit in capital Account
(d) Fresh capital : Credit in Capital Account
Q7. If a transaction has the effect of decreasing an asset , is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded or as a credit?
Ans: Decrease in Asset will be recorded on credit side.
Decrease in Liability will be recorded on credit side.
Q8. Which transactions will:
I. Decrees the Assets and Decrease the Capital.
II. Increase the Assets and Increase the Liabilities.
III. Increase the Assets and Decrease another Asset.
IV. Decrease the Assets and Decrease the Liabilities.
(I) Drawings or Expenses:
(II) Purchase of an asset on credit;
(III) Purchase or sale of an asset in cash;
(IV)Payment of a liability.
Q9. What will be the effect of the following on the accounting Equation:-
1. Purchased goods for Rs 20,000 from Mahesh on Credit.
2. Sold goods to Suresh costing Rs 8,000 for Rs 10,000 in Cash.
3. Paid wages Rs 500
4. Withdrew in cash for private use Rs 2,000
5. Paid to creditor’s Rs 5,000.
1. + stock+ Creditors
2. + cash – stock + capital
3. – Cash – capital
4. –Cash- Capital
5. –cash- Creditors]
Q10. Explain in short the meaning of an Accounting Equation.
Q11. Taking profits and losses into consideration, state with the help of an Accounting Equation, what will the assets be equal to? Illustrate with imaginary figures.
Q12. Describe the fundamental accounting equation. How are revenue and expense accounts related to it?
Q13. What is owner's equity? Give an equation for calculating owner's equity. Give two examples at least.
Q14. From the following information find the capital of Vijay: Total Assets Rs.5,00,000; Creditors Rs.1,00,000; Loan from Bank Rs.1,50,000.
Q15. If the Capital is Rs.2,60,000 and Assets are Rs.5,00,000, what is the amount of Liabilities?
Q16. If the Capital is Rs.1,00,000 and Outside Liabilities are Rs.2,50,000, find the Total Assets.
Q17. Raman started business on 1st April 2008 with a Capital of Rs.25,000 and a loan of Rs.12,500. On 31st March, 2009, his assets were Rs.50,000. Find his capital as on 31st March, 2009 and the profit earned during the year.
Ans: Capital Rs.37,500; Profit Rs.12,500.
Q18. If total assets are Rs.4,00,000 and net worth is Rs.1,20,000; profit Rs.25,000; compute the creditors.
Q19. Calculate total assets if:
Capital is Rs.2,00,000; Creditors Rs.50,000; Revenue during the year Rs.5,00,000; and Expenses during the year Rs.4,00,000.
Q20. (a) A starts a business and invests Rs.50,000 on 1st April, 2008. On 31st March, 2009 his assets are Rs.65,000 and liabilities are Rs.6,000. Find out the amount of capital on 31st March, 2009 and his profit.
(b) In the above case, if the proprietor had invested Rs.5,000 as additional capital and withdrawn Rs.2,000, what will be your answer?
(c) If A had withdrawn from his business Rs.3,000 for personal use, find out the profit in this case.
Ans: (a) Capital Rs.59,000, Profit Rs.9,000; (b) Profit Rs.6,000; (c) Profit Rs.12,000.