Basic Accounting Equation Examples PDF

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Basic Accounting Equation Examples...

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TEST I: TRUE OR FALSE 1. When total expenses will equal to total revenue, the sales is at break-even. TRUE 2. Profit represents residual interest in the assets of the business after deducting all liabilities. FALSE 3. “To credit” means to enter amount of value received on the left-side of the account. FALSE 4. The basic accounting equation is reported in both balance sheet and income statement. FALSE 5. The excess of revenue over expenses is called operating profit. TRUE TEST II: MULTIPLE CHOICE 1. A rendering service to a customer’s account may result to a – a. Credit accounts receivable b. Credit cash c. Debit accounts receivable d. Debit income 2. Business transaction are analyzed from the viewpoint of the – a. Creditor c. Owner d. Investors b. Business 3. Are resources controlled by the enterprise as a result of past transactions and events and from which future economic benefits are expected to flow the enterprise – a. Assets c. Liabilities b. Expense d. Revenue 4. Loss will result during the period when – a. Assets exceed Liabilities b. Expense exceed Revenue c. Liabilities exceed Assets d. Revenue exceed Expense 5. A credit entry may signify an increase in – a. Asset c. Liability b. Expense d. Drawing TEST III: PROBLEMS 1. Owner’s Equity, beginning is P 100,000; the withdrawal during the period is P 50,000 and the additional investment P 30,000. If owner’s equity, end is P 110,000. How much profit generated at the end of the period? a. P 20,000 c. P 50,000 d. P 100,000 b. P 30,000 2. If the owner’s equity, beginning was P 80,000 and the profit for the period is P 20,000 while the drawing by the owner is P 20,000. How much would be the owner’s equity, end? a. P 70,000 c. P 80,000 b. P 110,000 d. P 90,000 3. In the accounting equation A = L + OE, if liability is P 50,000 which is equal to 331/3 % of the total assets of Norberto Bersal Marketing, how much amount would represent owner’s equity? c. P 125,000 a. P 100,000 b. P 150,000 d. P 175,000

TEST IV: Determination of the Unknown Accounting Elements SHOW YOUR SOLUTION 1 2 3 REVENUE P 140,000 ? P300,000 EXPENSES 95,000 75,000 75% PROFIT/LOSS P ? P 55,000 ? ANSWER: P45,000 P130,000 P75,000 SOLUTION: 1) PROFIT = REVENUE – EXPENSE = 140,000 – 95,000 = P45,000 2) REVENUE = EXPENSE + PROFIT = 75,000 – 55,000 = P130,000 3) PROFIT = REVENUE – EXPENSE = 300,000 – (300,000*75%) = P75,000 TEST V: Transaction Affecting Changes in Accounting Values SHOW YOUR SOLUTION At the beginning of the year, Purita Un Company had total assets of P 650,000 and total Liabilities of P290,000. Answer the following questions: 1. During the year, total liabilities decreased by P 90,000 and owners’ equity increased by P 50,000, what is the amount of total assets at the end of the year? TOTAL ASSETS = P610,000 SOLUTION: ASSETS = LIABILITIES + OWNER’S EQUITY ASSETS = (290,000 - 90,000) + [(650,000 290,000) + 50,000] ASSETS = 200,000 + 410,000 ASSETS = P610,000 2. If total assets decreased to P 550,000 during the year and the owners’ equity decreased to P285,000, what is the amount of the total liabilities at the end of the year? TOTAL LIABILITIES = P265,000 SOLUTION: LIABILITIES = ASSETS - OWNER’S EQUITY LIABILITIES = P550,000 - 285,000 LIABILITIES = P265,000

TEST VI: DETERMINE THE UNKNOWN ACCOUNTING ELEMENTS SHOW YOUR SOLUTION 1 2 3 ASSETS P 250,000 ? P 250,000 LIABILITIES ? 540,000 60% OWNER’S EQUITY P 195,600 70% ? ANSWER: P54,500 P1,800,000 P100,000 SOLUTION: 1) LIABILITIES = ASSETS – OWNER’S EQUITY = 250,000 – 195,600 = P54,500 2 ASSETS = 540,000/30% = P1,800,000 3) OWNER’S EQUITY = ASSETS – ) LIABILITIES = 250,000 – (250,000*60%) = 250,000 – 150,000 = P100,000 TEST VII: Instruction: Classify the following accounts whether ASSETS, LIABILITIES, REVENUE and EXPENSE; and also determine the normal balance DEBIT and CREDIT. CLASSIFICATION NORMAL OF ACCOUNTS BALANCE EXPENSE DEBIT 1. Taxes and License 2. Accounts ASSETS DEBIT Receivable 3. Mortgage Payable LIABILITIES CREDIT 4. Repair Income REVENUE CREDIT 5. Land ASSETS DEBIT 6. Prepaid Rent ASSETS DEBIT 7. Tan, Capital OWNER’S CREDIT EQUITY 8. Utilities Expense EXPENSE DEBIT 9. Cash ASSET DEBIT 10. Accounts Payable LIABILITIES CREDIT...