N-Level Principles of Accounts

Question 1

What is the accounting equation?

Accepted Answer

Assets = Liabilities + Capital (Owner's Equity)

Answer

The fundamental accounting equation states that Assets = Liabilities + Capital (Owner's Equity). This means everything a business owns (assets) is funded either by borrowing (liabilities) or the owner's investment (capital).

Question 2

What is the difference between a 'debit' and a 'credit' in double-entry bookkeeping?

Accepted Answer

Debits record increases in assets and expenses (left side); credits record increases in liabilities, capital, and revenue (right side)

Answer

In double-entry bookkeeping, debits (left side) increase assets and expenses while decreasing liabilities and capital. Credits (right side) increase liabilities, capital, and revenue while decreasing assets.

Question 3

What is a 'trial balance' in accounting?

Accepted Answer

A list of all ledger account balances to check that total debits equal total credits

Answer

A trial balance lists all debit and credit balances from the ledger. If total debits equal total credits, the books are arithmetically correct (though some errors may still exist).

Question 4

What is the purpose of a 'balance sheet' (statement of financial position)?

Accepted Answer

To show the financial position of a business at a specific point in time, listing assets, liabilities, and capital

Answer

The balance sheet provides a snapshot of what the business owns (assets), what it owes (liabilities), and the owner's stake (capital) at a specific date, following the accounting equation.

Question 5

What is 'depreciation' in accounting?

Accepted Answer

The systematic allocation of the cost of a non-current asset over its useful life to reflect its declining value

Answer

Depreciation spreads the cost of a non-current asset (e.g., machinery, vehicles) over the years it is expected to be used. It reflects wear and tear, reducing the asset's book value each year.

GCE N-Level Practice Test

GCE N-Level Practice Test

N-Level Principles of Accounts