Chapter 2-Mcqs

Thursday, December 24, 2020 10:36 AM
PRACTICE QUESTIONS
1) Which of the following statements is incorrect?
a) Assets – Capital = Liabilities
b) Liabilities + Capital = Assets
c) Liabilities + Assets = Capital
d) Assets – Liabilities = Capital
2) Which of the following is equal to net assets?

a) Assets – capital
b) Capital + profit – drawings
c) Total liabilities – current assets
d) Total liabilities – current liabilities
3) A business has capital of $10,000. Which of the following asset and liability figures could appear in this
business’s statement of financial position?
ASSETS ($) LIABILITIES ($)
a) 6,000 16,000
b) 6,000 4,000
c) 10,000 10,000
d) 14,000 4,000
4) Which of the following is a long term liability?

a) Loan (payable in three years)
b) Trade payables
c) Value added tax (sales tax) payable
d) Bank overdraft
5) Which of the following is incorrect?

ASSETS LIABILITIES CAPITAL
a) 7,850 1,250 6,600
b) 8,200 2,800 5,400
c) 9,550 1,150 8,200
d) 6,540 1,120 5,420
6) Inventory worth $5,000 is sold for $8,000. The complete effect of this transaction on the accounting
equation will be?
a) Profit will be increased by $3,000
b) Inventory will decrease by $5,000, cash will increase by $8,000 & profit will increase by $3,000
c) Inventory will decrease by $5,000, & profit will increase by $8,000
d) Cash will increase by $8,000 & profit will increase by $3,000
7) Goods which originally cost $400 were sold for $550. In the accounting equation Net Assets will;
a) Rise by $550
b) Rise by $150
c) Fall by $550
d) Fall by $150
8) Given opening capital of $16,500, closing capital $11,350, and drawings were $3,300, then
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8) Given opening capital of $16,500, closing capital $11,350, and drawings were $3,300, then
a) Loss for the year was $1,850
b) Profit for the year was $1,850
c) Loss for the year was $8,450
d) Profit for the year was $8,450
9) Which of the following statements is correct?
TRANSACTIONS EFFECT
a) We paid trade payable by cheque - Bank - Trade payables
b) A debtor paid us $90 in cash + Cash + Debtors
c) J Hall lends us $900 by cheque + Bank - Loan from Hall
d) Bought goods on credit + Inventory + Capital
10) Which of the following best describe the meaning of “Purchases:

a) Items bought
b) Goods bought on credit
c) Goods bought for resale
d) Goods bought for cash
11) The capital of a sole trader would change as a result of which of the following?
a) A trade payable being paid his account by cheque
b) Raw materials being purchased on credit
c) Fixed assets being purchased on credit
d) Wages being paid in cash
12) Given the following, what is amount of capital?

Assets: Premises $ 20,000, Inventory $ 8,500, Cash $ 100
Liabilities: Trade payables $ 3,000, Loan from Adam $ 4,000
a) 21,100
b) 21,600
c) 32,400
d) None of them
13) Zain has just started up a business. He introduces $10,000 of his savings, equipment worth $2,500 and
obtained a bank loan of $1,000. What is the balance of Zain’s capital?
a) $12,500
b) $13,500
c) $11,000
d) $10,000
14) A business receives an accountant’s bill of $ 500, which of the following statements correctly shows the
effect upon the accounting equation of the business, assuming the bill is unpaid.
a) Assets decrease, Liabilities increase
b) Capital decrease, Liabilities increase
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14) A business receives an accountant’s bill of $ 500, which of the following statements correctly shows the
effect upon the accounting equation of the business, assuming the bill is unpaid.
a) Assets decrease, Liabilities increase
b) Capital decrease, Liabilities increase
c) Capital increase, Liabilities decrease
d) Assets decrease, Capital decrease
15) Which of the following changes could not occur as a result of an entry in the bookkeeping records?
a) Increase assets and increase liability
b) Increase assets and increase capital
c) Increase capital and increase liability
d) Increase capital and decrease liability
16) Which of the following statements concerning a debit entry is incorrect?

a) It records an increase increases assets
b) It records a business expense
c) It records an increase in the liability of business
d) It records a decrease in the liability of business.
17) Which of the following is the current liability?

a) A bank overdraft
b) Capital
c) Goodwill
d) A loan from a bank payable in two years
18) The owner of a business withdrew $ 500 from cash for his personal use. What would be the effect of this
transaction on the accounting equation?
a) Assets increase, capital decreases
b) Assets decrease, Liabilities increase
c) Assets decrease, Capital decrease
d) Assets decrease, Capital increases
19) John introduces his car into his business. Which parts of the business accounting equation will change?
a) Capital and profit
b) Assets and capital
c) Capital and liabilities
d) Liabilities and assets
20) Which of the following represent a credit?

i. Decrease in an asset
ii. Decrease in income
iii. Decrease in an expense
iv. Increase in a liability
a) (i), (ii), (iv)
b) (i), (iii), (iv)
c) (i), (ii), (iii)
d) (ii), (iii), (iv)
21) When an expense is paid in cash:

a) Net assets increases and profit increases
b) Net assets decreases and profit decreases
c) Net assets remain the same and profit decreases
d) Net assets remain the same and profit increase
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d)
22) Which of the following statements regarding the net profit of a business is true?
a) It is calculated by deducting the cost of sales from sales
b) It increases the liability of the business to its owner
c) It can be calculated by adding together the increase in net assets, capital introduced and drawings
d) It tells the owner the financial position of a business at a particular point in time
23) What is the main purpose of an accounting system to a business?

a) To generate the business accounts
b) To calculate the tax payable by a business
c) To record, summarize and present information from documentation generated by business transactions
d) To enable the owner to know if the business is trading profitably
24) Jackson pays for computer equipment by a cheque from the business bank overdraft. Which parts of the
accounting equation are changed by this transaction?
a) Assets and liabilities
b) Assets and income
c) Liabilities and profit
d) Capital and income
25) Which of the following should not be called sales?

a) Office fixtures sold
b) Goods sold on credit
c) Goods sold for cash
d) Sale of item previously included in purchases
26) At 1 January Roberts business assets were valued at 36,000 and his liabilities amounted to 2,400. At 31
December 1996, Robert’s assets amounted to 57,000 and include his private car which he had brought
into the business on 1st November when it was valued at $9,000. His trade payables at 31 December
totaled 17000 and his drawings during the year were 27000. Robert’s profit for the year to 31 December
was:
a) 6400
b) 24400
c) 33400
d) 58000
27) Arthur had net assets of $19,000 at 30 April 20X7. During the year to 30 April 20X7, he introduced
$9,800 additional capital into the business. Profits were $8,000, of which he withdrew $4,200.
What was the balance on Arthur’s capital account at 1 May 20X6?
a) $5,400
b) $13,000
c) $16,600
d) $32,600
28) The following transactions relate to Max’s business:
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28) The following transactions relate to Max’s business:
1 May Purchase of goods for resale on credit $300

2 May Max injects long term capital into the business $1,400
3 May Payment of rent made $750
5 May Max withdraws cash from the business $400
7 May Sales made on credit $1,200
The goods sold on 7th May originally cost $600. At the start of the week, the assets of the business were $15,700 and
liabilities amounted to $11,200.
At the end of the week, what is the amount of Max’s capital?

a) $5,350
b) $1,400
c) $850
d) $1,000
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Thursday, December 24, 2020 10:36 AM

2) Which of the following is equal to net assets?

4) Which of the following is a long term liability?

5) Which of the following is incorrect?

9) Which of the following statements is correct?

10) Which of the following best describe the meaning of “Purchases:

12) Given the following, what is amount of capital?

16) Which of the following statements concerning a debit entry is incorrect?

17) Which of the following is the current liability?

20) Which of the following represent a credit?

21) When an expense is paid in cash:

23) What is the main purpose of an accounting system to a business?

25) Which of the following should not be called sales?

28) The following transactions relate to Max’s business:

1 May Purchase of goods for resale on credit $300

At the end of the week, what is the amount of Max’s capital?

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