Accounting Equation

1. The owner invests personal cash in the business.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

2. The owner withdraws cash from the business for personal use.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

3. The company receives cash from a bank loan.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

4. The company repays the bank that had lent money to the company.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

5. The company purchases equipment with its cash.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

6. The owner contributes his/her personal truck to the business.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity
7. The company purchases a significant amount of supplies on credit.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

8. The company purchases land by paying half in cash and signing a note payable for the other half.

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

Company X provides consulting services to Client Q in May. Company X bills Client Q in May
for the agreed upon amount of $5,000. The sales invoice shows that the amount will be due in
June.
9. In May, Company X records the transaction by a debit to Accounts Receivable for $5,000 and a
credit to Service Revenues for $5,000. What is the effect of this entry upon the accounting
equation for Company X?

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

10. In June, Company X receives the $5,000. What is the effect on the accounting
equation and which accounts are affected at Company X?

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

11. What is the effect on Client Q's accounting equation in May when Client Q records the
transaction as a debit to Consultant Expense for $5,000 and a credit to Accounts Payable for
$5,000?

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity
12. What is the effect on Client Q's accounting equation in June when Client Q remits the $5,000?
Also, which accounts will be involved?

Increase Decrease No Effect

Assets
Liabilities
Owner’s Equity

13. Which of the following will cause owner's equity to increase?

Expenses

Owner Draws

Revenue

14. Which of the following will cause owner's equity to decrease?

Net Income

Net Loss

Revenue

15. The accounting equation should remain in balance because every transaction affects how many
accounts?
Only One

Only Two

Two Or More

.
16. A corporation's quarterly __________ will cause a reduction in the corporation's retained
earnings, which in turn reduces the corporation's stockholders' equity. However, this will not
reduce the corporation's net income.
17. The financial statement with a structure that is similar to the accounting equation is the
__________
.
18. The financial statement that reports the portion of change in owner's equity resulting from
revenues and expenses during a specified time interval is the
__________
.