Basic Accounting Equation Quiz

What is the basic accounting equation?

• LIABILITIES = ASSETS + EQUITY

• EQUITY = ASSETS - LIABILITIES

• ASSETS = EQUITY - LIABILITIES

• ASSETS = LIABILITIES + EQUITY

In a sole proprietorship, what is equity referred to as?

• Partner's Equity

• Investor's Equity

• Stockholder's Equity

• Owner's Equity

What happens to the accounting equation when a business purchases equipment for cash?

• Assets remain the same, equity remains the same

• Assets increase, liabilities decrease

• Assets remain the same, equity decreases

• Assets remain the same, liabilities increase

What is the effect on the accounting equation when supplies are purchased on account?

• Assets decrease, equity decreases

• Assets increase, equity increases

• Assets increase, liabilities increase

• Assets decrease, liabilities decrease

What is the result of making a payment to a creditor?

• Assets decrease, equity increases

• Assets decrease, liabilities decrease

• Assets increase, equity decreases

• Assets increase, liabilities increase

How is prepaid rent recorded in the accounting equation?

• Increase in liabilities

• Decrease in equity

• Increase in assets

• Decrease in assets

What happens when services are sold for cash?

• Assets decrease, equity decreases

• Assets increase, equity increases

• Assets decrease, liabilities decrease

• Assets increase, liabilities increase

How is selling services on credit recorded?

• Increase in liabilities

• Increase in assets

• Decrease in equity

• Decrease in assets

What is the effect of collecting accounts receivable?

• Assets decrease, equity decreases

• Assets remain the same, equity increases

• Assets remain the same, liabilities remain the same

• Assets increase, liabilities decrease

What is the impact of paying a utility bill on the accounting equation?

• Assets decrease, expenses increase

• Assets increase, liabilities decrease

• Assets increase, equity decreases

• Assets decrease, equity increases