Accounting equation:

Resources = Other + Own

Assets = Liability + Capital

Q1. Practice Question (Solve with accounting equation):

Asset Liabilities Capital

$ $ $
a) 10,000 ? 2,029
Solution:
Asset = Liability + Capital
10,000 = x + 2,029
10,000 - 2,029 = x
7,971

Asset Liabilities Capital

$ $ $
b) 9,000 3,000 ?
Solution:
Assets = Liabilities + Capital
9,000 = 3,000 + x
9,000 - 3,000 = x
6,000

Asset Liabilities Capital

$ $ $
c) 3,000 1,090 ?
Solution:
Assets = Liabilities + Capital

Asset Liabilities Capital

$ $ $
d) ? 2,000 2,009
Solution:
Assets = Liabilities + Capital
x = 2,000 + 2,009
x = 4,009

Assets Liabilities Capital

$ $ $
e) ? 3,100 4,790
 Solution:
Assets = Liabilities + Capital
x = 3,100 + 4,790
x = 7,890

Assets Liabilities Capital

$ $ $
f) 4,723 3,232 ?
Solution:
Assets = Liabilities + Capital
4,723 = 3,232 + x
4,723 - 3,232 = x
1,491 = x

Q2. Practice Question (Solve with accounting equation):

Liabilities Capital Assets
$ $ $ Answers
a) ? 20,000 42,009
Solution:
Assets = Liabilities + Capital
42009 = x + 20,000
42,009 - 20,000 = x
22,009 = x

b) 7,009 ? 11,111 4,102

c) 3,320 ? 13,131 9,811
d) ? 2,323 4,323 2,000
e) 5,000 7,723 ? 12,723

Q3. Practice Question (Solve with accounting equation):

Asset Liabilities Capital
$ $ $
a) ? 20,000 7,000 27,000
b) 7,003 2,001 ? 5,002
c) 14,929 5,000 ? 9,929
d) ? 2,732 67 2,799
e) 17,003 ? 1,001 16,002
g) ? 6,270 2,070 8,340

Q4. Which of the items in the following list are asstes and liabilites?
a) Motor vehicle (A) b) Loan from Mr. C (L)
c) Bank (A) d) Rent payable (L)
e) Furniture (A) f) Cash (A)
 Q5. Which of the items in the following list are asstes and liabilites?
a) Stocks (A) b) Tables and chair (A)
c) Electricity bill payable (L) d) Building (A)
e) Bank loan (L)

Q6. Which of the items in the following list are asstes and liabilites?
a) Telephone bill payable (L) b) Telephone set (A)
c) Salaries payable (L) d) Cheque received (A)
e) Creditors (L)

Q7. a) Distinguish between Current Assets, Non Current Assets,

Current liabilities and Non current liabilities.
b) Distinguish between Tangible and intangible assets. (Non Current Asset)
1) Cash at bank (CA) 2) Paid rent i 3) Cash at hand (CA)
4) Stock (CA) 5) Trade recei 6) Trade payables (CL)
7) Tax payable (CL) 8) Goodwill (N 9) Land (NCA)-(Tangible)
10) Building (NCA)-(Tangible) 11) Equipment 12) Software (NCA)-(In-Tangible)
13) Property (NCA)-(Tangible) 14) Copy right 15) Stationary (CA)
16) Furniture (NCA)-(Tangible) 17) Bank overdr 18) 5 years bank loan (NCL)
19) Websites (NCA)-(In-Tangibl 20) Machinery 21) Interest payable (CL)
22) Expense payable (CL) 23) Interest re 24) 5 years investment (NCA)-(Tangible)

Q8. a) Distinguish between Current Assets, Non Current Assets,

Current liabilities and Non current liabilities.
b) Distinguish between Tangible and intangible assets. (NCA)
1) Land (NCA)-(Tangible) 2) Rent payabl3) Motor vehicle (NCA)-(Tangible)
4) Cash in hand (CA) 5) Paid fees i 6) Salary payable (CL)
7) Bank overdraft (CL) 8) Machinery 9) Building (NCA)-(Tangible)
10) Furniture (NCA)-(Tangible)11) Prepaid ren12) Copy right (NCA)-(Intangible)
13) Account payable (CL) 14) Debtors (C 15) Telephone bill payable (CL)
16) Interest payable (CL) 17) Tax payable18) Goodwill (NCA)-(Intangible)
19) Wages payable (CL) 20) Van (NCA)-(21) Bank balance (CA)
22) Prepaid advertising (CA) 23) Table and c24) Printer paper unused (CA)
25) Creditors (CL) 26) Inventory/s27) Commission payable (CL)
28) Equipment (NCA)-(Tangible29) 6 months ba 30) Computers (NCA)-(Tangible)

Credit Suppliers (CL) = Trade payable/Account payable/Creditors

Credit Customers (CA) = Trade receivable/Account receivable/debtors
Prepaid (CA) = Paid in advance
Stock (CA) = Inventory/Merchandise inventory/Goods

Accounting equation:
At year start:
Assets = Liability + Capital
 At Year end:
Assets = Liability + Capital + Net profit - Drawing + Additional investment
OR
Assets = Liability + Capital - Net Loss - Drawing + Additional investment
OR
Net Assets = Assets - Liability
OR
Net Assets = Capital + Net profit - Drawing + Additional investment

Q9. Solve the following question with accounting equation?

a) Calculate the missing figure:

Assets $65,000 Drawing $5,000
Liabilties $18,000 Additional investment $8,000
Capital $22,000 Net profit ?

Solution:
Assets = Liabilities + Capital + Net profit -
65,000 = 18,000 + 22,000 + x -
65,000 = 43,000 + x
65,000 - 43,000 = x
22,000 = x

b) Calculate the missing figure:

Asstes $78,000 Drawing $10,000
Liabilities $15,000 Additional investment $2,000
Capital ? Net profit $30,000

Solution:
Assets = Liabilities + Capital + Net profit -
78,000 = 15,000 + x + 30,000 -
78,000 = 37,000 x
78,000 - 37,000 = x
41,000 = x

c) Calculate the missing figure:

Assets ? Drawing $8,000
Liabilites $22,000 Additional investment $18,000
Capital $18,000 Net Loss $4,000

Solution:
Assets = Liabilities + Capital - Net Loss -
 x = 22,000 + 18,000 - 4,000 -
x = 46,000

d) Calculate the missing figure:

Net Assets $85,000 Additional investment $36,000
Capital $40,000 Net profit $12,000
Drawing ?

Solution:
Net Assets = Capital + Net profit - Dawing +
85000 = 40,000 + 12000 - x +
85000 = 88,000 - x
85,000 - 88,000 - x
-3,000 - x
3000 = x

e) Calculate the missing figure:

Assets $105,000 Drawing $13,000
Liabilites ? Additional investment $10,000
Capital $42,000 Net profit $15,000

Solution:
Assets = Liabilities + Capital + Net profit -
105,000 = x + 42,000 + 15,000 -
105,000 = x + 54,000
105,000 - 54,000 = x
51,000 = x

Q10. Draw up N. Marriott's statement of financial position from the following information
as at 31 December 2011: (Accounting equation)
$
Capital 20,700
Account Receivable 800
Car 8,300
Account payable 3,600
Equipment 7,900
Inventory 5,700
Cash at bank 1,600

Solution:
Assets = Liability + Capital
Account Receivable 800 = Account payable 3,600 20,700
Car 8,300
Equipment 7,900
Inventory 5,700
 Cash at bank 1,600
24,300 = 3,600 + 20,700

Q11. Draw up Mr. M statement of financial position as at 30 June 2012 from the following
items:
$
Capital 10,200
Equipment 3,400
Account payable 4,100
Inventory 3,600
Accounts receivable 4,500
Cash at bank 2,800

Solution:
Assets = Liability + Capital
Equipment 3,400 Account payable 4,100 10,200
Inventory 3,600
Accounts receivable 4,500
Cash at bank 2,800
14,300 4,100 + 10,200
###

###
###
###
###
(NCA)-(Tangible)
Dawing + Additional investment
5,000 + 8,000

Dawing + Additional investment

10,000 + 2,000

Dawing + Additional investment

 8,000 + 18,000

Additional investment
36000

Dawing + Additional investment

13,000 + 10,000
 Practice Questions
Q1. Complete the columns to show the effects of the following transactions:
Assets = Liability
$ $
a) $500 paid to creditors in cash (500) = (500)
b) $600 cheque received from customers 600
(600)
c) Proprietor introduced $500 into business in cash 500
d) Bought some furniture at $2,000 on credit 2,000 = 2,000
e) Sold some old furniture at $200 on cash 200
(200)
g) Mr. King lends the business $2,500 in cash 2,500 = 2,500
4,500 = 4,000

Q2. Complete the columns to show the effects of the following transactions:
Assets = Liability
$ $
a) Debtors paid $500 by cheque. 500
(500)
b) Paid loan by cheque to Mr. Smith amount $1,000 (1,000) = (1,000)
c) Bought material for credit at amount $2,000 2,000 = 2,000
d) We paid to supplier by cheque $1,500 (1,500) = (1,500)
e) Owner introduced some further cash $2,500 2,500 =
f) We returned goods to supplier $500 (500) = (500)
g) Customer paid $700 in cash 700
(700)
1,500 = (1,000)

Q3. Complete the columns to show the effects of the following transactions:
Assets = Liability
` $ $
a) Proprietor put first time cash $5,000 5,000 =
b) Bought building paying $5,000 in cash 5,000
(5,000)
c) Bought extra furniture $500 by cheque 500
(500)
d) Sold motor vehicle at amount $1,000 by cash 1,000
(1,000)
e) Machinery sold for at amount $5,000 by cash 5,000
(5,000)
f) Receipt payments $2,000 from debtors 2,000
(2,000)
5,000 = -
Q4. Complete the columns to show the effects of the following transactions:
Assets = Liability
$ $
a) Purchase material from Mr. Smith for credit $7,200 7,200 = 7,200
b) Mr. Smith bought goods $200 by cheque 200
(200)
c) Mr. King paid us $250 by cash 250
(250)
d) Mr. Walker lend us $2,000 2,000 = 2,000
e) We paid Mr. Smith $7,200 by cheque (7,200) = (7,200)
f) Proprietor introduced his car amount $2,500 into business 2,500 =
4,500 = 2,000

Q5. Complete the columns to show the effects of the following transactions:
Assets = Liability
$ $
a) Sold motor vehicle at amount $16,000 by cash 16,000
(16,000)
b) We returned good $900 to supplier (900) = (900)
c) Receipt payments $7,000 from debtors 7,000
(7,000)
d) Bought premises paying $7,000 by cash 7,000
(7,000)
e) Mr. King lends the business $1,500 in cash 1,500 = 1,500
f) $600 cheque received from customer 600
(600)
600 = 600

Q6. Complete the columns to show the effects of the following transactions:
Assets = Liability
$
a) Started business with $2,000 cash 2,000 =
b) Returned faulty furniture costing $65 to Betta Built Ltd. (65) = (65)
c) Paid to Super Motor a cheque for $890 (890) = (890)
d) Took $400 out of the bank and put it into the cash till 400
(400)
e) Repaid part of Chow's loan by cash $150 (150) = (150)
f) Paid the amount owing to Planers Ltd. $750 by cheque (750) = (750)
145 = (1,855)
+ Capital
$

500

+ 500

+ Capital
+ $

2,500

+ 2,500

+ Capital
$
5,000

5,000
 + Capital
$

+ 2,500
+ 2,500

+ Capital
$

+ Capital
$
2,000

+ 2,000
TSA Kit
Basic concept
Page no 19 to 24
(ignore Q7, 13, 14,15)

Q1. Which of the following statement is correct?

A. Assets + Capital = Liabilities
B. Liabilities + Capital = Assets
C. Liabilities + Assets = Capital
D. Assets + Liabilities = Capital

Q2. When goods are taken out of the business for personal use by owner of a business,
these will be recorded as:
A. Drawings
B. As expense
C. Stock
D. A liability

Q3. Which of the following is not as asset?

A. Building
B. Cash balance
C. Debtors
D. Loan from Mr. Jims

Q4. Which of the following is a liability?

A. Machinery
B. Creditors
C. Motor vehicles
D. Cash at bank

Q5. Which of the following is a current asset?

A. Owner's capital
B. Petty Cash
C. Salesmen's motor car
D. Computer software

Q6. The accounting equation can be written as:

A. Assets = owner + Liabilities
B. Assets - Liabilities = Capital - profit + drawing
C. Net assets = assets - liabilities
D. Net assets + sales = capital - expenses - drawings

Q7. The capital of a sole trader would be change as a result of:

A. A creditor being paid his account by cheque
B. Raw materials being purchased on credit Asset = Liability + Capital + Net profit - Drawing + Additional in
C. Fixed assets being purchased on credit. Cost Sale
D. Wages being paid in cash 60 100
70 100
Q8. 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

Q9. The owner of a small business draws out some money for personal use. Which of the following
correctly states the effect of drawings upon the accounting equation?
A. Assets increase, capital increases
B. Assets decrease, capital increase
C. Assets decrease, capital decrease
D. Assets decrease, liability decrease

Q10. The assets of an organization with owner's equity $100,000 and liabilities $50,000
A. $50,000 Assets = Liability
B. $150,000 150,000 = 50,000
C. $100,000
D. None of the above

Q11. Which of the following is a current liability?

A. Trade debtors
B. Stock
C. Bank overdraft
D. Drawings

Q12. Which of the following describes the accounting equation?

A. Net assets = capital - profit - drawings
B. Net assets = capital - profit + drawings
C. Net assets = capital + profit + drawings
D. Net assets = capital + profit - drawings

Q13. If the owner of a business withdraws cash from the business bank account in order
to meet her own expenses, this is classified as drawings. This is an example of the
operation of:
A. Internal control
B. Personal ledger accounting
C. Segregation of duties
D. The separate entity principle.

Q14. When stock is purchased on credit: Assets =

A. Net assets and owner's capital do not change $500 =
B. Net assets increase and owner's capital increase 500 - 500
C. Net assets decrease and owner's capital decrease 0
D. Net assets increase and owner's capital decrease

Q15. When an expense is paid in cash:

A. Net assets increase and profit increase
B. Net assets decrease and profit decrease
C. Net assets remain the same and profit increase
D. Net assets remain the same and profit decrease

Q16. Which of the following is a current asset?

A. Bank deposit account
B. Premises
C. Computer
D. Tools

Q24. Which parts of the accounting equation are changed by paying off a loan by cash?
A. Assets, capital
B. Assets, liabilities
C. Capital, liabilities
D. Assets, capital, liabilities

Q25. Which of the following statements is incorrect?

A. Assets - capital = liabilities
B. Liabilities + capital = assets
C. Liabilities + assets = capital
D. Assets - liabilities = capital

Q26. 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

Q27. Which of the following statement is correct?

Effects upon
Assets Liabilities
A. We paid a creditor by cheque - Bank - Creditors
B. A debtor paid us $90 in cash + Cash + Debtors
C. J Hall lends us $500 by cheque + Bank - Loan from Hall
D. Bought goods on credit + Stock + Capital

Q28. Which of the following best describes the meaning of purchases?

A. Items bought
B. Goods bought on credit Goods purchase for resale
C. Goods bought for resale
D. Goods paid for

Q29. Which of the following should not be called sales?

A. Office fixtures sold
B. Goods sold on credit
C. Goods sold on cash
D. Sale of item previously included in purchases

Q30. Given the following, what is the amount of capital? Assets: Premises $20,000, Stock $8,500,
Cash $100. Liabilities: Creditors $3,000, Loan from A Adams $4,000.
A. $21,100
B. $21,600
C. $32,400
D. $21,400

Solution:
$ $ $
Assets = Liabilities + Capital
Premises 20,000 = Creditors 3,000
Stock 8,500 Loan 4,000
Cash 100
28,600 = 7,000 + x

, 28,600 - 7,000 = 21,600

Q31. Which of the following is correct?

A. Profit does not alter capital
B. Profit reduce capital
C. Capital can only come from profit
D. Profit increases capital

Q32. A trader's net profit for the year may be computed by using which of the following formula?
A. Opening capital + drawings - capital introduced - closing capital
B. Closing capital + drawings - capital introduced - opening capital
C. Opening capital - drawings + capital introduced - closing capital
D. Closing capital - drawings + capital introduced - opening capital

Q33. The profit earned by a business in 1997 was $72,500. The proprietor injected new capital of $8,000
during the year and withdraw goods for his private use which had cost $2,200. If the net assets at the
beginning of 1997 were $101,700, what were the closing net assets?
A. $35,000
B. $39,400
C. $168,400
D. $180,000

Formula:
Net Assets/Capital at start x 101,700
Add profit x 72,500
Less drawing (x) (2,200)
Add additional investment x 8,000
Net Assets/Capital at end x 180,000

Q34. The profit made by a business in 2004 was $35,400. The proprietor injected new capital of $10,200
during the year and withdraw a monthly salary of $500. If the net assets at the end of 2004 were
$95,100, what was the proprietor's capital at the beginning of the year?
A. $50,000
B. $55,500
C. $63,900
D. $134,700

Solution:
Net Assets/Capital at start 55,500
Add profit 35,400
Less drawing (500 x 12) (6,000)
Add additional investment 10,200
Net Assets/Capital at end 95,100

Q35. A business had net assets of $32,500 at 1 January 2004. The net profit, after proprietor's
drawings, for the year ended 31 December 2004 was $13,250. Drawings were made at the
rate of $750 per month in cash. The propreitor also withdrew for his own use goods costing $340
and with a selling price of $800. No new capital introduced during the year. What were the
net assets 31 Decemeber 2004?
A. $35,950
B. $36,410 Cash drawing 9,000
C. $45,750 Goods drawing (Cost) 340
D. $64,430 9,340

Solution:
Net Assets/Capital at start 32,500
Add profit 13,250
Less drawing -
Add additional investment -
Net Assets/Capital at end 45,750

Q36. A business has net assets at 1 January and 31 December 2004 of $75,600 and $73,800
respectively. During the year, the proprietor introduced additional capital of $17,700 and
 withdrew cash and goods value of $16,300. What profit or loss was made by the business in 2004?
A. $3,200 loss
B. $400 loss
C. $400 profit
D. $3,200 profit

Solution:
Net Assets/Capital at start 75,600
Profit/Loss (3,200)
Less drawing (16,300)
Add additional investment 17,700
Net Assets/Capital at end 73,800

Q37. A business had net assets at 1 January and 31 December 2004 of $47,100 and $54,200
respectively. During the year the proprietor introduced additional capital of $22,000 and
made drawings of $200 per week. What profit or loss was made by the business in 2004?
A. $18,700 loss
B. $4,500 loss
C. $4,500 profit
D. $18,700 profit

Solution:
Net Assets/Capital at start 47,100
Loss (4,500)
Less drawing (200 x 52) (10,400)
Add additional investment 22,000
Net Assets/Capital at end 54,200

Q38. Wanda keeps no accounting records.The following information is available about her position
and transaction for the year ended 31 December 2004:
$
Net assets at 1 January 210,000
Drawing during 2004 48,000
Capital introduced during 2004 100,000
Net assets at 31 December 2004 400,000
Based on this information, what was Wanda's profit for 2004?
A. $42,000
B. $242,000
C. $138,000
D. $338,000

Solution:
Net Assets/Capital at start 210,000
Add profit 138,000
Less drawing (48,000)
Add additional investment 100,000
Net Assets/Capital at end 400,000
 Sale 150 150
Cost (100) (115)
250 35

et profit - Drawing + Additional investment

 Profit
40
30

by business

f the following

+ Capital
+ 100,000

Liability + Capital
$500 0
 0

pon
Liabilities

Loan from Hall

 $

w capital of $8,000
f the net assets at the
capital of $10,200
nd of 2004 were

oods costing $340

at were the

9340
business in 2004?

her position
 Expense:
An expense is the money spent or cost incurred in an entity's efforts to generate revenue.

i) Capital expenditure
ii) Revenue expenditure

Expenditure
Capital Revenue
i) Convert into non current assets (NCA). i) Support non current assets (NCA).
ii) Intention to use. ii) Intention to sale.(Inventory)
iii) Expenditure incurred to bring asset iii) Avail one time benefit.
into useable condition.
iv) After start NCA expenditure incurred if, iv) After start NCA expenditure incurred if,
Increase life, Constant life,
Increase worth, Constant worth,
Increase production, Constant production,
Increase capacity, Constant capacity,
Increase effeciency etc. Constant effeciency etc

Q1. Classify the following between Capital and Revenue expenditure:

a) The purchase of machinery for use in the business. (CE)
b) Carriage paid to bring the machinery in (i) above to the works. (CE)
c) Complete redecoration of the premises at a cost of $1,500. (RE)
d) A quarterly acount of heating/Electricity bill. (RE)
e) The purchase of a soft drink machine.(CE)
f) Wages paid by a building contractor to his own workmen for the erection of an office
in the builder's stockyard. (CE)
M 4,000,000
Q2. Classify the following between Capital and Revenue expenditure: L 3,000,000
a) Purchase of a new van. (CE) FOH 2,000,000
b) Cost of altering interior of new van to increase carrying capacity.(CE) 9,000,000
c) Cost of motor tax of new van.(RE)
d) Cost of motor tax of existing van.(RE)
e) Cost of painting business name on new van.(CE)
f) Repair and maintenance of existing van.(CE)

Q3. Classify the following between Capital and Revenue expenditure:

a) Van purchase by a garage. (CE)
b) Repairs to a fruiter's van.(RE)
c) The cost of installing a new machine.(CE)
d) Cost of hiring refrigeration plant in a buthcher's shop. (RE)
e) Twelve dozen sets of cutlery, purchased by a catering firm for a new dining room. (CE)
f) A motor vehicle bought for resale by a motor dealer. (RE)
g) The cost of acquiring copy rights.(CE)
Q4. Classify the following between Capital and Revenue expenditure:
a) The cost of repairs and an extension to the premises. (CE)
b) Intallation of a gas central heating boiler in place of an oil-fired central heating boiler. (CE)
c) Small but expensive alterations to a cigarette manufacturing machine which increased
the machine's output by 20 percent. (CE)

Q5. Classify the following between Capital and Revenue expenditure:

a) Cost of building extension to factory.(CE)
b) Purchase of extra filing cabinets for sales office.(CE)
c) Cost of repairs to accounting machine. (RE)
d) Legal fees paid in connection with factory extension. (CE)

Q6. Classify the following between Capital and Revenue expenditure:

a) Purchase of new van. (CE)
b) Cost of rebuilding warehouse wall which had fallen down. (RE)
c) Building extension to the warehouse. (CE)
d) Painting extension to the warehouse when it is first built.(CE)
e) Repainting extension to the warehouse three years later than that done in (d).(RE)
f) Carriage cost on bricks for new warehouse extension. (CE)
g) Carriage cost on sales. (RE)
h) Carriage cost on purchase. (RE)
i) Legal cost of collecting debts. (RE)
j) Legal charges on acquiring new premises for office. (CE)
k) Fire insurance premium.(RE)
l) Cost of erecting new machine. (CE)

Q7. Classify the following between Capital and Revenue expenditure:

a) Repairs to meat slicer. (RE)
b) New tyre for van. (RE)
c) Additional shop counter.(CE)
d) Renewing signwriting on shop. (RE)
e) Fitting partitions in shop.(CE)
f) Roof repairing. (RE)
g) Installing thief detection equipment. (CE)
h) Wages of shop assistant. (RE)
i) Carriage on sales. (RE)
j) New cash register. (RE)
k) Repairs to office safe. (RE)
4,000,000
3,000,000
2,000,000
9,000,000