Chapter 2: The accounting equation

The accounting equation can be written as:

• Assets + profits - drawings - liabilities = closing capital

• Assets - liabilities - drawings = opening capital + profit

• Assets - liabilities - opening capital + drawings = profit

• Opening capital + profit - drawings - liabilities = assets

The capital of a sole trader would change as a result of

• a credit customer paying by bank transfer

• raw materials being purchased on credit

• non-current assets being purchased on credit

• personal petrol being paid for out of the business's petty cash

The purpose of the financial statement that lists an entity's total assets and total capital and liabilities is to show:

• the financial performance of the entity over a period of time

• the amount the entity could be sold for in liquidation

• the amount the entity could be sold for as a going concern

• the financial position of the entity at a particular point in time

A sole trader is £5,000 overdrawn at her bank and receives £1,000 from a credit customer in respect of its account. Which element(s) of the accounting equation will change due to this transaction?

• Assets and liabilities

• Liabilities only

• Assets only

• Assets, liabilities and capital

A sole trader purchases goods on credit. Which element(s) of the accounting equation will change due to this transaction?

• Assets and liabilities

• Assets and capital

• Capital and liabilities

• Assets only

A sole trader borrows £10,000 from a bank. Which element(s) of the accounting equation will change due to this transaction?

• Assets and liabilities

• Assets and capital

• Capital and liabilities

• Assets only

A sole trader sells goods for cash for £500 which had cost £300. Which element(s) of the accounting equation will change due to this transaction?

• Assets and liabilities

• Assets and capital

• C. Capital and liabilities

• D. Assets only

A sole trader increases the business's number of motor vehicles by adding his own car to the business's fleet. Which element(s) of the accounting equation will change due to this transaction?

• Assets only

• Capital only

• Assets and capital

• D. Assets and liabilities

Which of the following would be classified as a non-current asset?

• Cash

• Prepayments

• Land

• Receivables