ARFB113 Topic 3

What does the accounting equation represent?

• The cash flow of a business

• The expenses incurred by a business

• The total revenue generated by a business

• The relationship between assets, liabilities, and equity

Which of the following is an example of a current asset?

• Long-term loans

• Accounts receivable

• Machinery

• Building

What is the primary difference between cash accounting and accrual accounting?

• Cash accounting records expenses when incurred

• Accrual accounting records revenues when cash is received

• Accrual accounting records expenses when cash is paid out

• Cash accounting records revenues when cash is received

Which of the following is correct?

• Assets RM6,980; Liabilities RM1,560; Equity RM5,000

• Assets RM9,720; Liabilities RM2,150; Equity RM6,200

• Assets RM8,450; Liabilities RM3,800; Equity RM4,600

• Assets RM7,500; Liabilities RM1,200; Equity RM6,300

What is the effect on the accounting equation when an asset is increased?

• Owner's equity must increase

• Liabilities must decrease

• Another asset must decrease or a liability must increase

• Expenses must increase

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

• Purchasing office equipment on credit

• Paying monthly expenses

• Rendering services for cash

• Withdrawing cash for personal use

What does capital expenditure represent?

• Costs incurred to improve or extend the useful life of an asset

• Operational costs of running a business

• Expenses for generating revenue

• Costs related to daily operations

In the rules of debit and credit, an increase in liabilities is recorded as a:

• Credit

• Neither

• Debit

• Both

What is the purpose of the Conceptual Framework for Financial Reporting?

• To provide a detailed guide for financial transactions

• To assist in understanding and interpreting standards

• To replace existing accounting standards

• To develop specific accounting standards

An investment by the owner of a business entity in a building, at a cost of RM100,000 with a RM40,000 outstanding loan, would

• increase owner's equity RM100,000

• increase owner's equity RM60,000

• increase total assets RM140,000

• decrease liabilities RM40,000