Grade 10 Business Studies – Effects of Business Transactions (12 Lessons) Quiz
1. A business buys office furniture for cash. What is the immediate effect on the accounting equation?
Buying furniture for cash increases the furniture asset but reduces the cash asset by the same amount, so total assets are unchanged.
2. The business takes a bank loan and deposits it into the business bank account. Which accounts are affected?
A bank loan brings cash into the business (asset up) while creating a loan payable (liability up).
3. The owner withdraws cash from the business for personal use (drawings). What is the effect?
Drawings reduce the business cash (asset) and reduce owner's capital (equity) because it is a distribution to the owner.
4. A business makes a cash sale of goods. Which best describes the effect?
A cash sale brings in cash (asset up) and creates revenue, which increases owner's equity (profit).
5. Goods are purchased on credit from a supplier. What is the immediate effect on the accounting equation?
A credit purchase increases stock (asset) while creating a creditor (liability) until payment is made.
6. A customer returns goods that were sold on credit (sales return). What happens?
A sales return reduces the amount owed by the customer (receivable) and reduces revenue, lowering profit and equity.
7. A debtor pays the business the amount owed from a previous credit sale. What is the effect?
Receiving payment converts receivables (asset) into cash (asset); total assets remain but cash rises while receivables fall.
8. The business pays rent in advance for three months. How is this recorded initially?
Paying rent in advance creates a prepaid expense (asset) because the benefit is for future periods; cash is reduced now.
9. At year end wages owed but not yet paid are recorded. What is the effect of this accrual?
Accruing unpaid wages records an expense (which reduces equity) and creates a liability (accrued wages payable).
10. The owner injects more capital into the business by depositing personal cash into the business bank account. What is the effect?
Owner's investment increases business cash (asset) and increases owner's capital (equity).
11. Depreciation is recorded on factory machinery at the end of the year. Which best shows the effect?
Depreciation is an expense that reduces profit (and equity) and increases accumulated depreciation (which reduces net asset value).
12. A trade debtor is declared irrecoverable and bad debt is written off. What is the effect?
Writing off bad debts removes the receivable (asset down) and records an expense that reduces profit and owner's equity.
13. The business pays a supplier early and receives a cash discount. How does this affect the accounts?
Paying early reduces cash and clears the payable; the discount reduces the cost of purchases or reduces expense, benefiting equity.
14. A sale is made on credit. Which two accounts are increased immediately?
A credit sale creates a receivable (asset up) and records revenue, which increases profit and thus owner's equity.
15. The owner takes goods from stock for personal use. What is the immediate accounting effect?
When goods are withdrawn for personal use they reduce business inventory and are treated as drawings, reducing owner's capital.
16. A business pays a supplier by cheque. Which accounts are affected at payment?
Paying a creditor by cheque reduces the bank balance and removes the liability to the supplier.
17. A contra entry is made when the owner transfers cash from the bank to the petty cash float. What is the effect?
A contra entry records a transfer between cash accounts: bank falls while petty cash (another asset) rises; total assets stay the same.
18. Which transaction would increase both an asset and owner's equity at the same time?
Earning revenue on credit increases receivables (asset) and increases equity through increased income/profit.
19. The owner introduces stock (inventory) from home into the business as additional capital. What happens?
Owner's contribution of goods increases business inventory and is treated as capital, raising owner's equity.
20. Which of the following is NOT affected by a business transaction under the business-entity concept?
Under the business-entity concept the owner's personal accounts are kept separate; only business accounts are recorded in business books.
21. A cheque received from a customer is later dishonoured (bounces). What is the accounting effect when the cheque is dishonoured?
When a cheque bounces, the bank balance is reduced (reversal of receipt) and the customer's debt is reinstated as receivable.
22. Payment of an outstanding electricity bill previously recorded as a payable results in which effect?
Settling a recorded payable reduces the bank balance and clears the liability on the balance sheet.
23. Stationery is bought and paid for in cash. Which accounts are affected?
Buying stationery for cash reduces cash (asset) and records an expense, which reduces profit and owner's equity.
24. A business sells old equipment for cash at a price below its book value. Which describes the combined effect?
Sale brings in cash (asset up) and removes the equipment (asset down); selling below book value creates a loss (expense) that reduces equity.
25. Equipment is purchased using a bank loan (credit purchase financed by loan). What is the immediate effect?
Buying equipment financed by a loan adds the asset to the business while creating a corresponding loan liability.