Accounting Equation

What is the basic accounting equation?

• Assets = Liabilities + Equity

• Assets = Liabilities - Equity

• Assets = Liabilities x Equity

• Assets = Liabilities / Equity

In the context of the accounting equation, what does equity represent?

• The total value of assets

• The owner's claim after liabilities

• The total liabilities

• The cash flow

Which of the following transactions would increase both assets and liabilities?

• Taking a loan from a bank

• Paying off a debt

• Purchasing equipment with cash

• Receiving cash from a customer

How does paying off a liability affect the accounting equation?

• Decreases assets and decreases liabilities

• Increases assets and increases liabilities

• Increases assets and decreases equity

• Decreases liabilities and increases equity

If a company purchases a vehicle by paying cash, how does it affect the accounting equation?

• Assets increase, liabilities increase

• Assets decrease, liabilities decrease

• Assets remain the same, liabilities remain the same

• Assets increase, equity decreases

What happens to the accounting equation when a company earns revenue?

• Assets increase, equity increases

• Assets decrease, liabilities decrease

• Liabilities increase, equity decreases

• Assets remain the same, liabilities increase

Which of the following is NOT a component of the accounting equation?

• Assets

• Liabilities

• Revenue

• Equity

How does declaring a dividend affect the accounting equation?

• Decreases assets, decreases equity

• Increases assets, increases liabilities

• Decreases liabilities, increases equity

• Increases equity, decreases liabilities

If a company issues shares, how does it affect the accounting equation?

• Increases assets, increases equity

• Decreases assets, decreases liabilities

• Increases liabilities, decreases equity

• Decreases equity, increases liabilities

What is the effect on the accounting equation when a company pays rent?

• Decreases assets, decreases equity

• Increases assets, increases liabilities

• Increases liabilities, decreases equity

• Decreases liabilities, increases equity