CA Foundation · Accounting · Accounting Equation — True / False

Exercise and reference answers

Questions

1. Statement is true

   Yes

   Statement

   Assets = Liabilities + Capital is the accounting equation.

2. Statement is true

   No

   Statement

   Purchase of stock for cash decreases both assets and capital.

3. Statement is true

   Yes

   Statement

   Drawings by owner reduce capital.

4. Statement is true

   No

   Statement

   Goodwill is a fictitious asset.

5. Statement is true

   No

   Statement

   Capital expenditure is shown in the income statement.

6. Statement is true

   Yes

   Statement

   Accrual basis records income when earned, not when received.

Instructions

Decide each accounting fundamental: TRUE or FALSE.