The Accounting Equation
18 free practice questions with explanations
PassNova has 18 free AAT Level 2 Accounting practice questions on The Accounting Equation, each with a clear explanation. Practise them in the browser with instant feedback — 100% free, no sign-up, on any device. Updated for 2026.
The Accounting Equation: example questions & answers
Here are 6 example questions from this topic. Practise the full set of 18 free in the browser.
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Which of the following correctly states the accounting equation?
- A Assets = Capital − Liabilities
- B Assets = Capital + Liabilities ✓
- C Capital = Assets + Liabilities
- D Liabilities = Assets + Capital
Answer: The accounting equation is Assets = Capital + Liabilities. It reflects that everything a business owns is financed either by the owner (capital) or by third parties (liabilities).
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A business has assets of £40,000 and liabilities of £15,000. What is the capital?
- A £55,000
- B £25,000 ✓
- C £15,000
- D £40,000
Answer: Rearranging the accounting equation, Capital = Assets − Liabilities = £40,000 − £15,000 = £25,000.
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The owner introduces £10,000 of their own money into the business bank account. What is the effect on the accounting equation?
- A Assets increase and liabilities increase
- B Assets increase and capital increases ✓
- C Assets decrease and capital decreases
- D Liabilities increase and capital decreases
Answer: Capital introduced increases the asset Bank and increases the owner's capital by the same amount, so the equation stays in balance.
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Which of the following is classified as a liability of a business?
- A Trade receivables
- B Inventory
- C A bank loan ✓
- D Motor vehicles
Answer: A bank loan is money owed by the business to a third party, so it is a liability. Receivables, inventory and motor vehicles are all assets.
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A business with capital of £30,000 buys equipment for £8,000, paying by cheque. Immediately after this transaction, what is the total of assets?
- A £38,000
- B £22,000
- C £30,000 ✓
- D £8,000
Answer: Paying cash for equipment swaps one asset (bank) for another (equipment), so total assets remain £30,000. Only the composition of assets changes.
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A business has the following: premises £80,000, inventory £6,000, receivables £4,000, bank loan £30,000 and trade payables £5,000. What is the capital?
- A £125,000
- B £60,000
- C £55,000 ✓
- D £90,000
Answer: Assets = 80,000 + 6,000 + 4,000 = 90,000. Liabilities = 30,000 + 5,000 = 35,000. Capital = Assets - Liabilities = 90,000 - 35,000 = 55,000.