Test Your Knowledge - Accounting Equation

What is the basic accounting equation?

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

What is an example of an asset?

Loan from a bank
Cash in hand
Mortgage payments

If liabilities increase, what happens to the accounting equation?

Owner's equity increases
Assets must decrease
Assets must increase

What is an example of a liability?

Equipment
Accounts payable
Retained earnings

What does owner’s equity represent?

The company's debt
The value of the business owned by the owner(s)
The value of assets after liabilities are deducted

What happens when assets increase?

Liabilities must decrease
Owner’s equity must decrease
Liabilities or owner’s equity must increase

If assets decrease, what happens to the equation?

Liabilities increase
Owner’s equity increases
Liabilities decrease

Which of the following is NOT an asset?

Cash
Land
Rent payable

What is the equation for the basic accounting formula?

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

If a business takes a loan from the bank, how is the equation affected?

Assets and liabilities both increase
Assets increase and liabilities decrease
Assets and owner’s equity both increase

Test Your Knowledge - You have 10 questions!