Chapter 3

The Accounting Equation

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QUIZ 1: MULTIPLE CHOICE

1. Which of the following is not a correct variation of the basic accounting equation?
a. Assets = Liability + Equity
b. Assets – Liabilities = Equity
Answer: D
c. Assets – Equity = Liability
d. Assets = Liability - Equity

2. Which of the following is not an essential element of an asset?

a. A resource controlled
b. Arising from past event
c. Expected to provide future economic benefits Answer: D
d. Must be owned by the business

3. Which of the following is not an essential element of a liability?

a. A present obligation
b. Arising from past event
c. Expected to cause an outflow of economic benefits Answer: D
d. Arising from a future event

4. A business has a past practice of making refunds to customers who are not satisfied with their
purchases. This practice has created valid expectations from customers that if they return the
goods they have purchased, the business will refund their payment. The business has been
honoring this practice for a very long period of time. The type of obligation created by this
practice is called
a. Constructive obligation
b. Legal obligation Answer: A
c. Construction obligation
d. Valid obligation

5. Equity is
a. Assets plus liabilities
b. Assets less liabilities Answer: B
c. Liabilities less assets
d. Assets times liabilities

6. Which of the following is not a correct expanded accounting equation?

a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses Answer: D
d. Assets = Liabilities + Equity + Income + Expenses

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7. These are increases in economic benefits during the period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than
those relating to investments by the business owners.
a. Expense
b. Income
Answer: B
c. Equity
d. Assets

8. Which of the following statements is correct?

a. Income increases equity
b. Expense increases equity
c. Income decreases equity Answer: A
d. Income and expense do not affect equity

9. Which of the following statements is incorrect?

a. If expense is greater than income, the difference is profit.
b. If income is greater than expenses, the difference is profit. Answer: A
c. If income is less than expenses, the difference is loss.
d. Profit increases equity.

10. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business owner
and an additional ₱250,000 from a bank loan. The total start-up assets of the business therefore is
a. ₱1,250,000
b. ₱1,000,000
c. ₱750,000 Answer: A
d. ₱250,000

“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.”
- Malcolm X

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 NAME: Date:
Professor: Section: L2C1 Score:

QUIZ 2: MULTIPLE CHOICE

1. A business has total liabilities of ₱100,000 and total equity of ₱80,000. How much is the total
assets?
a. 180,000
b. 100,000 Answer: A
c. 80,000
d. 20,000

2. A business has total assets of ₱100,000 and total equity of ₱80,000. How much is the total
liabilities?
a. 180,000
b. 100,000
c. 80,000 Answer: D
d. 20,000

3. A business has total assets of ₱100,000 and total liabilities of ₱40,000. How much is the total
equity?
a. 140,000
b. 100,000
c. 60,000 Answer: C
d. 20,000

4. A business earns total income of ₱100,000 and incurs total expenses of ₱70,000. How much is the
profit (loss)?
a. 30,000
b. (30,000) Answer: A
c. 100,000
d. 70,000

5. A business earns total income of ₱230,000 and incurs total expenses of ₱300,000. How much is
the profit (loss)?
a. 30,000
b. (30,000) Answer: C
c. (70,000)
d. 70,000

6. A business earns total income of ₱630,000 and reports profit of ₱270,000. How much is the total
expenses?
a. 280,000
b. 320,000 Answer: C
c. 360,000
d. 380,000

7. A business incurs total expenses of ₱630,000 and reports loss of ₱270,000. How much is the total
income?

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 a. 900,000
b. 320,000 Answer: C
c. 360,000
d. 380,000

8. Which of the following would result to income of ₱320,000?

a. Total expenses of ₱280,000 and loss of ₱40,000
b. Total expenses of ₱360,000 and profit of ₱40,000
Answer: D
c. Total expenses of ₱220,000 and loss of ₱100,000
d. Total expenses of ₱360,000 and loss of ₱40,000

9. Which of the following would result to total expenses of ₱480,000?

a. Total income of ₱360,000 and profit ₱120,000
b. Total income of ₱580,000 and loss of ₱100,000 Answer: C
c. Total income of ₱630,000 and profit of ₱150,000
d. Total income of ₱630,000 and loss of ₱150,000

10. At the start of the period, a business has total assets of ₱500,000 and total liabilities of ₱300,000.
During the period, the business earned total income of ₱1,000,000 and incurred total expenses of
₱640,000. No additional investments or withdrawals were made by the owner. How much is the
total equity at the end of the period?
a. 480,000
b. 520,000 Answer: C
c. 560,000
d. 640,000

“The roots of education are bitter, but the fruit is sweet.” – Aristotle
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 NAME: Date:
Professor: Section: Score:

QUIZ 3: MULTIPLE CHOICE

1. At the start of the period, a business has total assets of ₱500,000 and total liabilities of ₱300,000.
During the period, the business earned total income of ₱1,000,000 and incurred total expenses of
₱640,000. No additional investments or withdrawals were made by the owner. Total liabilities at
the end of the period were ₱380,000. How much is the total assets at the end of the period?
a. 980,000
b. 960,000
c. 940,000
d. 880,000

2. A business has total assets of ₱640,000 and total equity of ₱360,000 at the beginning of the
period. The business earned income of ₱220,000 during the period and reported profit of
₱80,000. There were no transactions with the owner during the period. How much is the ending
balance of equity?
a. 500,000
b. 440,000
c. 360,000
d. 280,000

3. A business has ending total assets of ₱480,000, ending total liabilities of ₱100,000 and beginning
equity of ₱280,000. If the total expenses for the period amount to ₱200,000, how much is the total
income?
a. 300,000
b. 340,000
c. 280,000
d. 420,000

4. A business has ending total assets of ₱680,000, ending total liabilities of ₱320,000 and beginning
equity of ₱480,000. If the total income for the period amount to ₱560,000, how much is the total
expenses?
a. 680,000
b. 560,000
c. 480,000
d. 420,000

5. A business has total assets, total liabilities, and total equity of ₱100,000, ₱70,000 and ₱30,000,
respectively, at the beginning of the period. During the period, total liabilities decreased to
₱40,000. The business reported profit of ₱50,000 for the period. How much is the ending total
assets?
a. 170,000
b. 140,000
c. 120,000
d. 90,000

“An investment in knowledge pays the best interest.” - Benjamin Franklin

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