Practice Questions
Practice Questions: Classification of Accounts and the Accounting Equation
This practice set tests your ability to classify revenue, expenses, assets, liabilities and owner's equity, apply the accounting equation (with and without revenue and expenses), and understand contra entries and the chart of accounts. All businesses are fictional.
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How to practise account classification
- For each item ask two questions: (1) Is it revenue, expense, asset, liability or owner's equity? (2) Is it linked to the main business activity (operating) or not (non-operating)? Together, the two answers decide its class.
- Watch items that depend on the business type: a vehicle is a non-current asset for a salon but trading stock (a current asset) for a car dealer. A long-term loan becomes a current liability once the balance is due within 12 months.
- Distinguish a trading business (has sales and cost of sales) from a service business (earns fees for services, holds no trading stock).
Steps for answering accounting-equation questions
- Start from the basic formula Assets = Liabilities + Owner's Equity. When revenue and expenses are involved, expand it to Assets = Liabilities + Owner's Equity + Revenue − Expenses − Drawings.
- For each transaction, identify the two accounts that change and make sure both sides of the equation stay balanced after every entry. Revenue increases equity; expenses and drawings reduce equity.
- For full ledger preparation and detailed Income Statement / Statement of Financial Position work, refer to the worked-example sets so this practice stays focused on classification and equation concepts.
| Account Code | Account Name | Category |
|---|---|---|
| 100 | Cash | Asset |
| 110 | Bank | Asset |
| 200 | Creditors | Liability |
| 300 | Capital | Owner's Equity |
| 400 | Sales | Revenue |
| 500 | Rent | Expense |
Codes are illustrative only; each business may set its own coding system as long as it is consistent by category.
Practice Questions
Question 1
Question 1 (Classifying revenue and expenses, service business). Salon Sri Kenanga provides hairdressing services. Classify each item as operating revenue, non-operating revenue, operating expense or non-operating expense: (a) Haircut service fees; (b) Interest on fixed deposit; (c) Rent of salon premises; (d) Interest on bank loan; (e) Salon workers' wages; (f) Dividend received from share investment.
Answer
(a) Operating revenue: the main income of a service business.
(b) Non-operating revenue: not from service activity.
(c) Operating expense: cost of running the salon.
(d) Non-operating expense: a financing cost, not an operating cost.
(e) Operating expense.
(f) Non-operating revenue.
Question 2
Question 2 (Classifying assets and liabilities). Perniagaan Perabot Indah (sells furniture) has the following items. Classify assets as Current or Non-current, and liabilities as Current or Non-current: Vehicle, Trading stock, Bank, Debtors, Shop fittings, Cash, Creditors, Bank loan (5-year term), Bank overdraft. Also give one reason a vehicle could be a current asset in a different business.
Answer
Non-current Assets: Vehicle, Shop fittings.
Current Assets: Trading stock, Bank, Debtors, Cash.
Non-current Liabilities: Bank loan (5 years).
Current Liabilities: Creditors, Bank overdraft.
Reason: For a vehicle dealer, vehicles are trading goods bought for resale, so they are classified as stock (a current asset), not a non-current asset.
Question 3
Question 3 (Accounting equation without revenue and expenses). (a) Perniagaan Maju Jaya has total assets of RM85,000 and total liabilities of RM32,000. Calculate owner's equity. (b) If another business has owner's equity of RM60,000 and liabilities of RM25,000, calculate its total assets.
Answer
Formula: Assets = Liabilities + Owner's Equity.
(a) Owner's Equity = Assets − Liabilities = 85,000 − 32,000 = RM53,000.
(b) Assets = Liabilities + Owner's Equity = 25,000 + 60,000 = RM85,000.
Question 4
Question 4 (Effect of transactions without revenue and expenses). Show the effect of each transaction of Kedai Runcit Amanah on the equation Assets = Liabilities + Owner's Equity: (1) Owner brings in cash RM50,000 as capital; (2) Buys a vehicle on credit RM30,000; (3) Buys fittings for cash RM8,000; (4) Pays a creditor RM10,000 by bank.
Answer
(1) Assets (Cash) +50,000; Owner's Equity (Capital) +50,000.
(2) Assets (Vehicle) +30,000; Liabilities (Creditors) +30,000.
(3) Assets (Fittings) +8,000; Assets (Cash) −8,000; total assets unchanged.
(4) Assets (Bank) −10,000; Liabilities (Creditors) −10,000.
Every transaction keeps the equation balanced.
Question 5
Question 5 (Equation with revenue, expenses and drawings). Restoran Selera starts with owner's equity of RM40,000. During the month: (1) Receives cash food-sales revenue RM6,000; (2) Pays wages RM2,000; (3) Owner takes trading goods (food) for personal use RM300; (4) Owner withdraws cash RM500 for personal use. Calculate owner's equity at month-end and state the effect of each transaction on equity.
Answer
Formula: Assets = Liabilities + Owner's Equity + Revenue − Expenses − Drawings.
(1) Revenue +6,000 → equity increases.
(2) Expense −2,000 → equity decreases.
(3) Drawings of goods −300 → equity decreases.
(4) Cash drawings −500 → equity decreases.
Closing equity = 40,000 + 6,000 − 2,000 − 300 − 500 = RM43,200.
Question 6
Question 6 (Contra entry). On 30 June, the owner of Perniagaan Wibawa deposits cash RM3,000 from the cash box into the business bank account. (a) State the meaning of a contra entry and list one other pair of accounts that can be set off by a contra entry. (b) Explain the effect of this transaction on the Cash and Bank accounts. (c) Explain the effect if this contra entry is not recorded.
Answer
(a) A contra entry is a transaction involving two accounts of the same entity, where one is debited and one credited with no outside party. Another example: contra between the Debtors and Creditors accounts of the same person.
(b) Bank is debited RM3,000 (increases), Cash is credited RM3,000 (decreases). Total assets are unchanged because money merely moves from the cash box to the bank.
(c) If not recorded, the Cash balance is overstated and the Bank balance is understated, making the cash and bank positions inaccurate.
Question 7
Question 7 (Chart of Accounts). Explain the definition of a Chart of Accounts and state one of its functions in accounting software. Then, referring to the example table above, prepare a simple chart of accounts for Perniagaan Teknik Jaya with at least one account for each category (asset, liability, equity, revenue, expense).
Answer
Definition: A Chart of Accounts is a coded list of all accounts a business uses, arranged by category (asset, liability, equity, revenue, expense).
Function in accounting software: it helps users pick the correct account when recording transactions, prevents classification errors, and lets reports be generated automatically by code.
A simple chart of accounts is shown in the table (code, account name, category). You may add accounts such as 130 Vehicle (Asset) or 510 Utilities (Expense).
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