Accounting Principles

Which expression correctly represents the fundamental accounting equation that underpins all double-entry bookkeeping?

• Assets + Liabilities = Owner's Equity
• Owner's Equity = Assets - Liabilities
• Liabilities = Assets - Owner's Equity
• Assets = Liabilities + Owner's Equity

Answer explanation

The accounting equation is Assets = Liabilities + Owner's Equity. Everything a business owns (assets) is financed either by creditors (liabilities) or the owner (equity). This equation must always remain balanced after every transaction.

A business purchases office equipment worth R3,000, paying cash immediately. Under double-entry bookkeeping, which journal entry is correct?

• Debit Office Equipment R3,000; Credit Cash R3,000
• Debit Equipment R3,000; Credit Accounts Payable R3,000
• Debit Office Supplies R3,000; Credit Cash R3,000
• Debit Cash R3,000; Credit Office Equipment R3,000

Answer explanation

Under the rules of double-entry bookkeeping, asset accounts increase on the debit side and decrease on the credit side. Because you are acquiring a new asset (Office Equipment), its value goes up. Because you are using money to pay immediately, your cash balance goes down.

Which financial statement summarises a company's revenues and expenses over a specific accounting period to show net profit or loss?

• Balance Sheet
• Cash Flow Statement
• Equity Statement
• Income Statement

Answer explanation

The Income Statement (Profit & Loss Statement) reports revenues earned and expenses incurred during a period, arriving at net income or net loss. The Balance Sheet is a point-in-time snapshot; the Cash Flow Statement tracks cash movements.

A customer pays R8,000 cash for services rendered on credit in a prior period. What is the correct ledger entry to record this receipt?

• Debit Accounts Payable R8,000; Credit Cash R8,000.
• Debit Cash R4,000; Credit Accounts Receivable R4,000.
• Debit Cash R8,000; Credit Accounts Receivable R8,000.
• Debit Cash R8,000; Credit Service Revenue R8,000.

On the Balance Sheet, under which section would 'Accounts Payable' — amounts owed to suppliers due within 90 days — be classified?

• Operating Expenses
• Current Liabilities
• Long-term Liabilities
• Equity Accounts