The accounting equation and double entry

Written by Sir Bilal Hassan (Accounting)

Class 11 · Accounting · 12 questions

Name: ____________________ Date: ____________

The accounting equation is:
- A Assets = Capital − Liabilities
- B Assets = Liabilities + Capital
- C Liabilities = Assets + Capital
- D Capital = Assets + Liabilities
An increase in an asset is recorded on the:
- A Credit side
- B Narration column
- C Debit side
- D Date column
An increase in capital is recorded on the:
- A Credit side
- B Date column
- C Narration column
- D Debit side
An expense is recorded on the:
- A Narration column
- B Debit side
- C Date column
- D Credit side
A business has assets of Rs 80,000 and liabilities of Rs 30,000. Its capital is:
- A Rs 80,000
- B Rs 30,000
- C Rs 110,000
- D Rs 50,000
Buying stock on credit from a supplier:
- A Increases assets and capital
- B Decreases capital
- C Increases assets and liabilities
- D Decreases liabilities
The book in which a transaction is first recorded is the:
- A Journal
- B Ledger
- C Trial balance
- D Balance sheet
A trial balance is prepared to check that:
- A The stock is counted
- B The profit is correct
- C All errors are removed
- D Total debits equal total credits
The owner starts a business with Rs 50,000 in cash. The journal entry is:
- A Debit Cash, credit Capital
- B Debit Purchases, credit Cash
- C Debit Capital, credit Cash
- D Debit Cash, credit Sales
Repaying a loan of Rs 10,000 in cash:
- A Decreases assets and liabilities
- B Increases capital
- C Increases assets
- D Decreases capital
Drawings made by the owner:
- A Increase liabilities
- B Reduce capital
- C Are an asset
- D Increase capital
Which of these is a liability?
- A Amount owed to a supplier
- B Stock of goods
- C Cash in hand
- D Machinery

Answer key

1. B, 2. C, 3. A, 4. B, 5. D, 6. C, 7. A, 8. D, 9. A, 10. A, 11. B, 12. A

Assets equal the claims of outsiders and of the owner.
Assets increase on the debit side.
Capital increases on the credit side.
Expenses are debited because they reduce capital.
Capital = 80,000 − 30,000.
Stock and the amount owed to the supplier both increase.
Transactions are first entered in the journal.
It tests the arithmetical agreement of the ledger.
Cash increases and capital increases.
Cash and the loan both fall by 10,000.
Drawings are withdrawals that reduce the owner's claim.
A liability is an amount the business owes.