ACC407-CHAPTER 3: ACCOUNTING EQUATION AND ACCOUNTING CLASSIFICATION

TUTORIAL 1

PART A: TRUE/FALSE QUESTIONS

No. Question True False

1. Commission received in advance is categories as current liability.

PART B: MULTIPLE CHOICE QUIESTIONS

1. Which of the following accounting equations is CORRECT?

A. EXPENSES = OWNER’S EQUITY + LIABILITIES + INCOMES – ASSETS

B. ASSETS = OWNER’S EQUITY + LIABILITIES – INCOMES + EXPENSES
C. LIABILITIES = OWNER’S EQUITY + ASSETS + INCOMES – EXPENSES
D. INCOMES = ASSETS – EXPENSES – LIABILITIES – OWNER’S EQUITY

2. Which of the following items refer to the same category?

A. Motor vehicles, photostat machine, rental of building.

B. Account receivable, prepaid insurance expense, accrued commission received
C. Bank loan, Long-term loan, Loan to Sally
D. Rental received, discount received, commission receivable

3. Which of the following is a revenue item?

A. Commission received
B. Discount allowed
C. Utilities
D. Stationeries

4. The owner’s equity of a business entity will decrease when __________.

i. goods are taken by the owner for personal use

ii. a non-current asset is purchased by cash
iii. owner's car is brought into the business
iv. there is a net loss for the year

A. i and ii
B. i and iv
C. ii and iii
D. All of the above

5. Which of the following items is a current asset?

A. Prepaid commission received

B. Prepaid rental income
C. Accrued utilities expense
D. Accrued dividend income
6. Based on the following information, calculate the total revenues using the accounting
equation.

Particular RM
Assets 320,000
Capital 300,000
Liabilities 60,000
Expenses 200,000

A. RM480,000
B. RM520,000
C. RM180,000
D. RM160,000

7. Which of the following items belong to the same group component in statement of
financial position?

A. Accounts receivables, inventory and bad debts.

B. Accounts payable, prepaid rental income and bank overdraft.
C. Quoted investment, Patents and Loan.
D. Accrued rental expenses, accounts receivable and inventory.

8. Which of the following equation is TRUE?

A. Asset + Capital = Liability

B. Asset + Expense – Capital = Revenue + Liability
C. Asset – Liability = Capital + Revenue + Expense
D. Asset + Liability + Revenue = Capital + Expense

9. Silvy owned a food truck business with an initial cash startup of RM150,000. She bought a
food truck costing RM90,000 using a bank loan charging 6% interest per annum. How
much is the total assets of her business?

A. RM240,000
B. RM150,000
C. RM245,400
D. RM95,400

10. Which of the following is considered as tangible asset?

A. Fixed deposit
B. Patent
C. Warehouse
D. Goodwill

11. Determine which of the following group belongs to current assets?

A. Account payable, cash in hand and salary

B. Account receivable, inventories and accrued rental income
 C. Cash at bank, motor vehicles and inventories
D. Account receivable, mortgage and drawing

12. Which of the following is classify as liability?

A. Cash at bank
B. Bank Overdraft
C. Drawing
D. Capital

13. All of the following are classified as non-current assets except ________.

A. Fixed deposit
B. Stationeries
C. Patents
D. Office equipment

14. Which of the following is true about carriage outwards?

A. The cost of carriage outwards is recorded in the Statement of Financial Position.

B. The cost of carriage outwards is part of the cost of goods sold.
C. Carriage outwards is recorded in the Statement of profit or Loss as operating
expenses.
D. Carriage outwards refers to the cost of transporting goods from a supplier to the
business.

15. Which of the following is a current asset?

A. Office equipment
B. Bank overdraft
C. Account Receivable
D. Account payable

16. Which of the following group belongs to liabilities?

A. Loan and accrued rental expenses, machinery.

B. Account payable, prepaid rental income and accrued utilities.
C. Motor vehicle, prepaid utilities and inventory.
D. Accrued uitilities, loan and accrued rental income .

17. Which of the following accounting equation is true?

A. Asset + Liability + Revenue = Capital + Expenses

B. Liability + Capital = Assets – Expenses + Revenue
C. Assets – Liability = Capital + Revenue + Expense
D. Asset + Expense – Capital = Liability + Revenue

18. On 1 January 2020, Mala started her business with cash of RM105,000 and a motor van
worth RM90,000. She also obtained RM250,000 15-year loan from ZZB Bank with 6%
annual interest. What is the total assets of her business?
 A. RM460,000
B. RM195,000
C. RM445,000
D. RM55,000

19. Based on the following information, calculate the amount of total expenses:

Items RM
Capital 70,000
Revenue 50,000
Liability 60,000
Asset 140,000

A. RM20,000
B. RM30,000
C. RM40,000
D. RM10,000

20. Which of the following item is not reported in the statement of profit or loss?

A. Salary expense
B. Commission received
C. Accrued electricity expense
D. Carriage inwards

21. Which of the following item is not reported in the statement of financial position?

A. Motor vehicles
B. Investment
C. Cash at bank
D. Interest on bank loan

22. Which of the following classification is correct?

A. Stationery – Current asset

B. Bank overdraft – Current asset
C. Office furniture – Non-current asset
D. Capital – Current liability

23. The following statements represent the definition of asset in financial accounting.

i. Resources controlled by the business as a result of past event.

ii. Economic resources which are of value to the business.
iii. Residual interest in the entity’s assets after deducting all its liabilities.
iv. Provide either present or future benefits to the business.

A. i and ii
B. i, ii and iii
C. i, ii and iv
 D. i, ii, iii and iv

24. The accounting equation forms the basis upon which the double entry system is
developed. Identify the correct expanded accounting equation below.

A. Asset + Capital = Liability

B. Asset + Expense – Capital = Revenue + Liability
C. Asset – Liability = Capital + Revenue + Expense
D. Asset + Liability + Revenue = Capital + Expense

25. The owner’s equity will increase when_____________.

i. a business incurred net loss

ii. the owner brought his personal laptop for business use
iii. a business obtained net profit
iv. the owner paid a supplier with his own cash

A. i and ii
B. ii and iv
C. ii,iii,and iv
D. i,ii and iii

PART C: SHORT-STRUCTURED QUESTIONS

QUESTION 1

Encik Abu is the owner of Perniagaan Maju Terus which established on 1 January 2020. The
business is involve in selling electrical appliances in the state of Melaka. All the goods sold are
imported from China. Encik Abu initially started business with RM100,000 cash, RM120,000
shop lot and RM70,000 worth of lorry. On the month of February 2020 they managed to get
loan from BMB Bank amounted to RM80,000 with annual interest of 6%. The business used
cash acquired from loan to purchase new office equipment amounted to RM25,000. He put the
remaining cash into fixed deposit account with yearly interest of 8%.

Six months later, the business expended successfully which require the business to rent a
warehouse and pay RM1,200 monthly rental. He hired two staff to help him run the business
with monthly salary of RM1,800. Encik Abu also purchased fire insurance for the business with
a premium of RM300 per month.

An extract of the business’s records as at 31 December 2020 showed the following information:

RM
Account receivables 20,000
Account payables 15,000
Inventory 2,000
Electricity bill 12,000
Water bill 6,000
Utilities 3,000
Required:
Classify the above business items into non-current assets, current assets, non-current liabilities,
current liabilities, owner’s equity, expenses and revenues.

QUESTION 2

Based on expanded accounting equation, identify the value of the missing items below:

Assets Liabilities Capital Revenues Expenses

i 555,000 ? 100,500 76,000 53,500
ii ? 33,000 90,000 50,000 24,000
iii 20,800 25,600 30,300 21,000 ?
iv 149,000 82,400 ? 19,900 17,123
v 96,000 54,700 23,000 ? 22,100