Basic accounting concepts used in the business world cover revenues, expenses, assets, and liabilities. These elements are tracked and recorded in documents including balance sheets, income statements, and cash flow statements.
Basic Accounting Concepts Questions and Answers
Activity 1: Matching items
Choose a definition from COLUMN B that matches the type of account in COLUMN A.
Draw a line from COLUMN A to COLUMN B to match the definitions.
| Column AÂ | Column BÂ |
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Answers to activity 1
| Column AÂ | Column BÂ |
| D G C F A B E |
Activity 2: Multiple-choice questions
Three options are provided as possible answers to the following questions.
Circle the correct answer.
| 1. Bank overdraft is classified as a… | 2. Consumable stores on hand is classified as… |
|  A Non-current liability |  A Owner’s equity |
| Â B Current asset | Â B Current asset |
| Â C Current liability | Â C An expense |
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Answers to activity 2
| Â 1 | C | This is a current liability because it will be paid back within 1 year (short-term). |
| Â 2 | B | This is a current asset because the business will use them within the next 12 months. |
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Activity 3: Accounting equation
Refer to Steps to recording transactions 1–4 above.
Record the transactions in the Table below assuming bank is favourable (Dr) at all times.
(When a bank is favourable it means it is an asset of the business and remains in a debit balance.)
- Wrote off a debtor’s account of R500 as a bad debt.
- Sent a cheque to a creditor to settle our account of R2 000.
- Received rent of R5 000 from a tenant.
- Bought trading stock on credit for R1 800.
- Bought equipment for R600 and paid by cheque.
Account debit Account credit A = O + L 1 Â 2 Â 3 Â 4 Â 5
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Answers to activity 3
| Account debit | Account credit | A = | O + | L | |
| 1 | Bad debts (expense increasing) | Debtors control (asset decreasing) | -500 | -500 | Â 0 |
| Â 2 | Â Creditors control (liability decreasing) | Bank (asset decreasing) | -2000 | 0 | -2000 |
| Â 3 | Bank (asset increasing) | Rent income (income increasing) | +5000 | +5000 | 0 |
| Â 4 | Trading stock (asset increasing) | Creditors control (liability increasing) | +1800 | 0 | +1800 |
|  5 | Equipment (asset increasing) | Bank (asset decreasing) | ±600 | 0 | 0 |