Accounting Quiz

What is the purpose of accounting in a business?

• To create products

• To record, analyze, and report financial transactions

• To advertise the business

• To hire employees

Answer explanation

The purpose of accounting in a business is to record, analyze, and report financial transactions. This process provides essential information for decision-making and financial management, making it crucial for business operations.

Which of the following is NOT an asset?

• Cash

• Debtors

• Loan from the bank

• Equipment

Answer explanation

A loan from the bank is a liability, not an asset. Assets include cash, debtors, and equipment, which represent resources owned by a business.

The accounting equation is:

• Income – Expenses = Profit

• Assets = Liabilities + Owner’s Equity

• Sales – Cost = Profit

• Debtors + Creditors = Capital

Answer explanation

The accounting equation, Assets = Liabilities + Owner’s Equity, represents the relationship between a company's resources and the claims against those resources, making it fundamental to accounting.

A business buys goods on credit. How does this affect the accounting equation?

• Assets increase, Liabilities increase

• Assets decrease, Liabilities decrease

• Only Owner’s Equity changes

• No effect

Answer explanation

When a business buys goods on credit, it increases its assets (inventory) and simultaneously increases its liabilities (accounts payable), thus the accounting equation reflects this change.

Which financial statement shows a business’s profit or loss?

• Balance Sheet

• Income Statement

• Cash Flow Statement

• Budget

Answer explanation

The Income Statement, also known as the Profit and Loss Statement, specifically shows a business's revenues and expenses, ultimately revealing its profit or loss over a specific period.

Study the following transactions and answer the questions:*  

    - Transaction 1: The owner invests R50,000 into the business.  

    - Transaction 2: The business buys inventory for R10,000 cash.  

    - Transaction 3: The business sells goods for R7,000 on credit.  

In Transaction 1, how much money does the owner invest into the business?

• R10,000

• R50,000

• R7,000

• R5,000

Answer explanation

In Transaction 1, the owner invests R50,000 into the business. Therefore, the correct answer is R50,000.

Study the following transactions and answer the questions:*  

    - Transaction 1: The owner invests R50,000 into the business.  

    - Transaction 2: The business buys inventory for R10,000 cash.  

    - Transaction 3: The business sells goods for R7,000 on credit.  

In Transaction 2, how much does the business spend on inventory?

• R5,000

• R7,000

• R10,000

• R50,000

Answer explanation

In Transaction 2, the business spends R10,000 to buy inventory. This is clearly stated in the transaction details, making R10,000 the correct answer.

Study the following transactions and answer the questions:*  

    - Transaction 1: The owner invests R50,000 into the business.  

    - Transaction 2: The business buys inventory for R10,000 cash.  

    - Transaction 3: The business sells goods for R7,000 on credit.  

In Transaction 3, how much are the goods sold for on credit?

• R5,000

• R7,000

• R10,000

• R50,000

Answer explanation

In Transaction 3, the business sells goods for R7,000 on credit. This amount is explicitly stated in the transaction details, making R7,000 the correct answer.

Study the following transactions and answer the questions:*  

    - Transaction 1: The owner invests R50,000 into the business.  

    - Transaction 2: The business buys inventory for R10,000 cash.  

    - Transaction 3: The business sells goods for R7,000 on credit.  

How does Transaction 1 affect the accounting equation?

• Increases assets and liabilities

• Increases assets and owner’s equity

• Decreases assets and liabilities

• Decreases assets and owner’s equity

Answer explanation

Transaction 1 increases assets (cash) by R50,000 and also increases owner's equity by the same amount, reflecting the owner's investment in the business.

Study the following transactions and answer the questions:*  

    - Transaction 1: The owner invests R50,000 into the business.  

    - Transaction 2: The business buys inventory for R10,000 cash.  

    - Transaction 3: The business sells goods for R7,000 on credit.  

What is the effect of Transaction 3 on assets and owner’s equity?

• Increases both

• Decreases both

• Increases assets, no effect on owner’s equity

• No effect on assets, decreases owner’s equity

Answer explanation

Transaction 3 increases assets by adding accounts receivable of R7,000 from the sale. However, it does not affect owner’s equity since it is a credit sale, not a cash transaction.