LO3 - ACCOUNTING EQUATION

A business purchases land by paying half in cash and signing a note payable for the balance. What is the effect on accounting equation?

• Increase in Assets (Land), Decrease in Assets (Cash), Increase in Liability (Notes Payable)

• Increase in Assets (Land), Increase in Assets (Cash), Increase in Liability (Notes Payable)

• Increase in Assets (Land), Decrease in Assets (Cash), Increase in Liability (Accounts Payable)

• Increase in Assets (Land), Increase in Liability (Notes Payable)

In what accounting element can we classify INVENTORIES?

• Assets

• Equity

• Liabilities

• Revenue

If the total liabilities is ₱15,000 and the total assets is ₱23,000, what is the total equity using the accounting equation?

• ₱48,000

• ₱8,000

• ₱8,800

• ₱800

Mr. Cruz, the owner of the Isaw Shop, invests personal cash in the business. What is the effect on accounting equation?

• Increase in Assets, Increase in Equity

• Decrease in Assets, Increase in Equity

• Increase in Liabilities, Increase in Assets

• Decrease in Assets, Decrease in Equity

What is the effect on an accounting equation if a business repays the bank that had lent money to the business?

• Decrease in Assets, Decrease in Liabilities, No effect in Equity

• Increase in Assets, Increase in Liabilities, No effect in Equity

• Increase in Assets, Decrease in Liabilities, No effect in Equity

• Decrease in Assets, Increase in Liabilities, No effect in Equity

In what accounting element we can classify UNEARNED INCOME?

• Assets

• Liabilities

• Equity

• Income

Which of the following statement best defines an asset?

• Assets are resources owned by the business that are expected to generate future benefits.

• Assets are resources belonging to the owner that are expected to generate future benefits.

• Assets are debts owed by customers that are expected to generate future benefits.

• Assets are representation of residual rights or interest of the owner.

This is referred to as a decrease in net income that is outside the normal operations of the business. It denotes no benefit to the entity.

• Loss

• Gains

• Expenses

• Drawings

This refers to the physical site owned by the business where building is situated.

• Land

• Assets

• Building

• Machineries

In what accounting element can we classify PREPAYMENTS?

• Assets

• Liabilities

• Equity

• Gains