Basic accounting equation

What is the basic accounting equation?

• Assets + Expenses = Liabilities + Owner's Equity

• Assets + Expenses = Liabilities + Owner's Equity

• Assets + Liabilities = Owner's Equity

• Liabilities + Revenue = Assets

If a company's assets increase and its liabilities remain unchanged, how does this affect owner's equity?

• Owner's equity increases

• Owner's equity decreases

• Owner's equity remains unchanged

• It depends on the specific assets that increased

Which of the following represents an example of an asset?

• Accounts Payable

• Equipment

• Owner's Drawings

• Owner's Capital

If a company borrows money from a bank, how does this transaction affect the basic accounting equation?

• Assets decrease, liabilities decrease

• Assets decrease, owner's equity decreases

• Assets increase, liabilities increase

• Assets increase, owner's equity decreases

Which financial statement is directly related to the basic accounting equation?

• Income Statement

• Balance Sheet

• Statement of Cash Flows

• Statement of Owner's Equity

Which of the following transactions would increase both assets and owner's equity?

• Payment of rent expense

• Purchase of inventory on credit

• Sale of goods for cash

• Payment of vehicles on credit

Which of the following represents an example of a liability?

• Bank

• Interest expense

• Mortgage loan

• Debtors control

What is the effect on the basic accounting equation when a company receives payment from a customer who previously purchased on credit?

• Assets decrease, liabilities decrease

• Assets increase, owner's equity increases

• Assets increase, liabilities increase

• Assets increase, assets decrease

Which of the following is true regarding the basic accounting equation?

• Assets minus liabilities equals owner's equity

• Liabilities must always equal owner's equity

• Assets must always equal owner's equity

• Assets must always equal liabilities

Which of the following affects owner's equity?

• Creditors control

• Drawings

• Mortgage loan

• Land and buildings