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ACCA Knowledge Level Asset, Liability and Equity Accounts — practice questions

Explore 7 free Asset, Liability and Equity Accounts questions in ACCA Knowledge Level Financial Accounting. Open each question or exercise to read its content, reference answers and available explanation.

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Asset, Liability and Equity Accounts questions and exercises with answers

Showing questions 1–7 of 7.

Under the cost principle, at what amount are assets recorded in the journal?Read the answer and worked solution →A key advantage of organising a business as a corporation rather than a sole proprietorship is:Read the answer and worked solution →Total equity of a corporation is made up of the balances in which two accounts?Read the answer and worked solution →The Cash Dividends account is best described as which type of account?Read the answer and worked solution →Match the Statement (ACCA FA)Read the answer and worked solution →P&L or Position? (ACCA FA)Read the answer and worked solution →Finish the Term (ACCA FA)Read the answer and worked solution →

Worked practice questions

Under the cost principle, at what amount are assets recorded in the journal?

  1. Their estimated resale value
  2. The amount still owed on them
  3. Their value after one year of use
  4. What the business paid to acquire them
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Correct answer: D. What the business paid to acquire them

1. The cost principle requires assets to be recorded at what they cost the business. 2. This is the amount paid to acquire them, not a later or estimated value. 3. Resale value (A) and depreciated value (C) are not the recording basis. 4. The amount owed (D) relates to a liability, not the asset's recorded cost. 5. Therefore assets are recorded at acquisition cost. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.1 "Assets", p.34_

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A key advantage of organising a business as a corporation rather than a sole proprietorship is:

  1. no requirement to keep accounting records
  2. exemption from filing any paperwork
  3. limited liability for the owners
  4. unlimited personal liability for debts
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Correct answer: C. limited liability for the owners

1. A corporation is a separate legal entity from its owners. 2. It offers limited liability, meaning owners can only lose what they invested. 3. Forming a corporation requires filing articles of incorporation, so option B is wrong. 4. Accounting records are still required (C), and unlimited liability (D) describes a sole proprietorship. 5. Therefore the advantage is limited liability. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.3 "Stockholders' Equity", p.36_

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Total equity of a corporation is made up of the balances in which two accounts?

  1. Share Capital and Retained Earnings
  2. Cash and Retained Earnings
  3. Share Capital and Accounts Payable
  4. Retained Earnings and Cash Dividends
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Correct answer: A. Share Capital and Retained Earnings

1. Equity is the owners' claim on the assets of the business. 2. Only two accounts fall in this category: Share Capital (common stock) and Retained Earnings. 3. Share capital comes from outside investment; retained earnings is profit generated inside the business. 4. Cash and Accounts Payable are not equity accounts, ruling out A and C; Cash Dividends is a contra account, ruling out D. 5. Therefore equity is Share Capital plus Retained Earnings. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.3 "Stockholders' Equity", p.37_

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