Quiz Solutions - Unit 2

Learning Unit 2: Accounting equation
1. How is the value of assets determined in terms of the basic accounting equation?
Answer: Assets = Equity + Liabilities
2. How is the value of equity determined in terms of the basic accounting equation?
Answer: Equity = Assets - Liabilities
3. How is the value of liabilities determined in terms of the basic accounting

equation?
Answer: Liabilities = Assets – Equity
Section B: Indicate if the following statements are true or false regarding the
duality concept:
4. For every transaction, the must be at least one debit entry and one credit entry.
Answer: True
5. Only one account can be credited and one account can be debited when
analysing a transaction.
Answer: False, more than one account can be debited or credited.
6. The total amount of the debit transactions must equal to the total amount of the
credit transactions.
Answer: True
7. The total amount of the business’s assets must equal to the sum of equity and
liabilities.
Answer: True
8. The duality concept is also referred to as the accrual concept.

Answer: False, the duality concept is also referred to as the double entry system
Section C: Fill in the missing word(s) in the blank spaces regarding the
nature/name of the account.
9. Contributions by the owner to the business are recorded in the capital account.
10. When cash or a cheque or an EFT is received or paid for by the business, it is
recorded in the bank account of the business.
11. When a business purchases anything from a third party and is allowed to pay for
the purchases in 3 months’ time, it is recorded in the Accounts payable/Creditors
control account.
12. Goods in a business using a perpetual inventory system are recorded in the
Inventory/Trading stock account.
13. When a business makes a sale on credit, the debit side of the entry is recorded in
the Accounts receivable/Debtors control account.
14. The amount of a fixed asset that is written off over the useful life of the fixed
asset in a financial period is recorded in the depreciation account.
15. When goods are sold on credit to a debtor, and the debtor is unable to settle the
account, the amount must be recorded in the bad debts accounts.
16. The credit side of the entry where receipts for goods sold in business are
recorded in the Revenue/sales account.
17. Withdrawals by the owner from the business for personal use are recorded in the
Drawings account.
Section D: Classification of accounts
18. Classify each of the following accounts into non-current asset, current asset,
equity, non-current liability, current liability, income or expense.
Name of account Classification
Mortgage loan Non-current liability
Accounts payable Current liability
Accounts receivable Current asset
Inventory Current asset
Bank Current asset
Revenue Income
Vehicles Non-current asset
Bad debts Expense
Drawings Equity
Capital Equity
Depreciation Expense
Rental received Income
Section E: For each of the transactions listed below, indicate the effect on the
basic accounting equation of the business:
19. The owner invests cash into the business.

Element of basic accounting Effect on basic accounting equation
equation (Increase/Decrease/No effect)
ASSETS Increase
(OWNER’S) EQUITY Increase
LIABILITIES No effect
20. The owner withdraws inventory from the business for personal use. Assume
perpetual inventory system is being used.
ASSETS Decrease
(OWNER’S) EQUITY Decrease
21. The business receives cash from a bank for a long-term loan.
ASSETS Increase
(OWNER’S) EQUITY No effect
LIABILITIES Increase
22. The business repays the bank in part settlement of the loan received above (refer
to number 21).
ASSETS Decrease
LIABILITIES Decrease
23. The business provides services to customers for cash.

ASSETS Increase
24. The business provides services to clients on credit.

ASSETS No effect
25. The business received cash from a customer for services previously provided on
credit (refer to number 24).
ASSETS Increase
26. One of the clients to whom services were provided on credit (refer to number 24)
is unable to settle the debt and it must be written off as irrecoverable.
ASSETS Decrease
27. The business purchases equipment on credit and must repay the debt in 6
months’ time.
ASSETS Increase
28. Depreciation on the equipment must be accounted for.

ASSETS Decrease
29. The business pays salaries to its employees in cash.

ASSETS Decrease
30. The business settles the debt owned for the equipment purchased (refer to
number 27).
ASSETS Decrease
Section F: Select the correct answer

31. Which if the following will result in owner’s equity increasing?
a. Expenses
b. Drawings
c. Revenue
Answer: C
32. Which of the following will result in owner’s equity decreasing?
a. Rental received
b. Expenses
c. Revenue
Answer: B
33. Which if the following will result in owner’s equity increasing?
a. Rental received
b. Drawings
c. Expenses
Answer: A
34. Which of the following will result in owner’s equity decreasing?

a. Interest income
b. Revenue
c. Drawings
Answer: C
Section G: Calculation questions
35. Calculate the value of equity if the business has equipment of R60 000; accounts
receivables of R25 000; an unfavourable bank balance of R4 000 and owes a
supplier R12 500?
Answer: Equity = Assets – Liabilities = (60 000 + 25 000) – (4 000 + 12 500) =
R68 500
36. Calculate the value of assets if the business has a loan from a bank of R100 000;
accounts payable of R19 240; capital of R182 000; unfavourable bank balance of
R4 440 and drawings of R12 000.
Answer: Assets = Equity + Liabilities = (182 000 -12 000) + (100 000 + 19 240 + 4
440) = R293 680
37. Calculate the value of liabilities if the business has equipment of R40 000; capital
of R50 000; bank R32 000 (favourable balance), drawings of R18 000 and
accounts receivable of R26 000.
Answer: Liabilities = Assets – Equity = (40 000 + 32 000 + 26 000) – (50 000 -
18 000) = R66 000
38. Calculate the value of non-current assets if the business has the following
balances: equipment of R60 000; inventory of R55 000; furniture of R12 000;
accounts receivables of R25 000; an unfavourable bank balance of R4 000;
motor vehicles of R192 400; owes a supplier R12 500; capital of R182 000;
drawings of R12 000 and a loan from a bank of R100 000.
Answer: (60 000 + 12 000 + 192 400) = R264 400
39. Calculate the value of current assets if the business has the following balances:
equipment of R60 000; inventory of R55 000; furniture of R12 000; accounts
receivables of R25 000; an unfavourable bank balance of R4 000; motor vehicles
of R192 400; owes a supplier R12 500; capital of R182 000; drawings of R12 000
and a loan from a bank of R100 000.
Answer: (55 000 + 25 000) = R80 000
40. Calculate the value of current liabilities if the business has the following balances:
equipment of R60 000; inventory of R55 000; furniture of R12 000; accounts
receivables of R25 000; an unfavourable bank balance of R4 000; motor vehicles
of R192 400; owes a supplier R12 500; capital of R182 000; drawings of R12 000
and a loan from a bank of R100 000.
Answer: (4 000 + 12 500) = R16 500

Quiz Solutions - Unit 2

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Quiz Solutions - Unit 2

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Learning Unit 2: Accounting equation

3. How is the value of liabilities determined in terms of the basic accounting

8. The duality concept is also referred to as the accrual concept.

19. The owner invests cash into the business.

23. The business provides services to customers for cash.

24. The business provides services to clients on credit.

28. Depreciation on the equipment must be accounted for.

29. The business pays salaries to its employees in cash.

Section F: Select the correct answer

34. Which of the following will result in owner’s equity decreasing?

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