Accounting Equation — Practice Quiz

Salary Account debited; Cash Account credited

Step 1: Identify the nature of each account. Salary is an Expense account; Cash is an Asset account. Step 2: For Expense accounts: Increase → Debit. Salary is increasing (an expense is being incurred), so Salary Account is DEBITED. Step 3: For Asset accounts: Decrease → Credit. Cash is decreasing (being paid out), so Cash Account is CREDITED. Step 4: This also satisfies the accounting equation: Cash (Asset) decreases and Capital decreases (due to expense), keeping A = L + C balanced. Option B reverses the entries incorrectly. Option C and D apply wrong rules to wrong accounts.

One asset (Furniture) increases and another asset (Cash) decreases by equal amounts; Net asset change = Zero

Step 1: In this transaction, cash is paid (asset decreases) and furniture is received (asset increases). Step 2: Both are assets, so it is an asset-to-asset exchange. Step 3: Net change in total assets = +Furniture − Cash = Zero. Step 4: Liabilities and Capital remain unchanged. Step 5: The equation A = L + C remains balanced as both sides are unaffected overall. Option B is wrong because capital does not change. Option C is wrong because no liability is created (cash is paid, not goods bought on credit). Option D is wrong because total assets do not decrease.

Credit side, because Bank Overdraft is a Liability

Step 1: Bank Overdraft means the business has borrowed money from the bank (owes money). It is a LIABILITY, not an asset. Step 2: Under the Modern Approach, for Liability accounts: Increase → Credit side; Decrease → Debit side. Step 3: Since the overdraft is increasing, it is recorded on the CREDIT side. Step 4: This is a common trick question – students often confuse Bank (asset) with Bank Overdraft (liability). Bank account has a debit balance; Bank Overdraft has a credit balance. Option B wrongly applies the decrease rule. Option C wrongly classifies it as an asset. Option D wrongly classif

Cash (Asset) +₹500; Capital +₹500

Step 1: Commission received is a Revenue/Income for the business. Step 2: Revenue increases Capital (profit increases owner's equity). Step 3: Cash (asset) increases by ₹500 as cash is received. Step 4: Capital increases by ₹500 due to the profit earned. Step 5: Equation check: Assets +₹500 = Liabilities (unchanged) + Capital +₹500 ✓. Option B is wrong: no liability is created when income is received. Option C is wrong: commission received is income (revenue), not an expense. Option D is wrong: creditors are not involved when cash is received.