When a firm borrows money from a bank, what is the impact on the accounting equation? MCQ with Answer and Explanation

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When a firm borrows money from a bank, what is the impact on the accounting equation?

A. No change in total assets

B. Liabilities increase, Equity decreases

C. Assets increase, Liabilities increase

D. Assets increase, Equity increases

Answer: Option C

Solution (By JKSSB Mock Tests)

Cash/Bank (Asset) increases, and Bank Loan (Liability) increases simultaneously.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

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The time value of money concept is a core element in which financial management decision?

A. Ratio Analysis

B. Working Capital Management

C. Inventory Valuation

D. Capital Budgeting

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Correct Answer: Option D

Explanation:
Capital budgeting techniques like Net Present Value (NPV) discount future cash flows, fundamentally relying on the time value of money.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #2

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S1: Revaluation Account is prepared to record changes in the values of assets and liabilities. S2: The profit or loss on revaluation is transferred to the old partners' capital accounts in their sacrificing ratio. Which statement(s) is/are correct?

A. Both S1 and S2

B. S1 only

C. Neither S1 nor S2

D. S2 only

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Correct Answer: Option A

Explanation:
Revaluation Account records the changes in asset and liability values at the time of admission/retirement. The net profit or loss is distributed among the old partners in their old profit-sharing ratio (which is the sacrificing ratio for the retiring partner). Both are correct.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping