The accounting equation

Written by Sir Bilal Hassan (Accounting)

Class 9 · Accounting · 12 questions

Name: ____________________ Date: ____________

A business has assets of Rs 120,000 and liabilities of Rs 45,000. What is capital?
- A Rs 75,000
- B Rs 165,000
- C Rs 2.67
- D Rs 45,000
The owner puts Rs 30,000 of personal cash into the business. How is it classified?
- A Sales revenue
- B An operating expense
- C A trade payable
- D An increase in capital
A business buys equipment for Rs 8,000 cash. What happens immediately to total assets?
- A They decrease by Rs 8,000
- B They increase by Rs 8,000
- C They double
- D They stay unchanged
A business receives a Rs 25,000 bank loan. Which two totals increase?
- A Assets and sales revenue
- B Capital and expenses
- C Assets and liabilities
- D Drawings and revenue
Which item is normally an asset of a small business?
- A Money owed by a customer
- B An unpaid bank loan
- C The owner’s personal home unrelated to the business
- D Money owed to a supplier
What are drawings?
- A Equipment used in production
- B Resources taken by the owner for personal use
- C Borrowing from a bank
- D Cash received from customers
Opening capital is Rs 40,000, profit is Rs 9,000 and drawings are Rs 3,000, with no other changes. What is closing capital?
- A Rs 49,000
- B Rs 52,000
- C Rs 34,000
- D Rs 46,000
Equipment costing Rs 6,000 is bought on credit. What happens to the equation?
- A Assets and capital each decrease by Rs 6,000
- B Only capital increases
- C Assets and liabilities each increase by Rs 6,000
- D Cash decreases by Rs 6,000 immediately
A business pays Rs 4,000 of loan principal from its bank account. What changes?
- A Liabilities rise by Rs 4,000
- B Capital increases by Rs 4,000
- C Assets and liabilities each fall by Rs 4,000
- D Revenue rises by Rs 4,000
Why is a proprietor’s personal grocery purchase normally recorded as drawings if paid from business cash?
- A Personal groceries always create business revenue
- B Drawings increase capital
- C It benefits the owner personally rather than the business
- D Every cash payment is wages
Capital is Rs 65,000 and liabilities are Rs 18,000. What are total assets?
- A Rs 18,000
- B Rs 65,000
- C Rs 83,000
- D Rs 47,000
Which transaction increases capital through business profit, assuming no related expense in this example?
- A Receiving Rs 2,000 loan principal
- B Receiving Rs 2,000 from the owner
- C Earning Rs 2,000 for a service provided
- D Transferring Rs 2,000 from bank to cash

Answer key

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

Capital = assets - liabilities = 120,000 - 45,000 = Rs 75,000.
The contribution comes from the owner, not from a customer or lender. Cash and capital both increase.
Equipment rises and cash falls by the same amount. It is an exchange of assets.
Cash is an asset and the obligation to repay is a liability. The loan itself is not income.
A customer balance is a receivable. Supplier balances and loans are liabilities; the owner’s separate property is not automatically a business asset.
Drawings reduce the owner’s interest. They are not an expense of running the business.
Closing capital = 40,000 + 9,000 - 3,000 = Rs 46,000.
The equipment is received now and payment is owed to the supplier. No cash is paid at that point.
Cash and the loan balance both decrease. Principal repayment is distinct from interest expense.
The business-entity distinction separates personal spending from business expenses.
Assets = liabilities + capital = 18,000 + 65,000 = Rs 83,000.
Service revenue contributes to profit. Loans, owner contributions and transfers have different accounting effects.