Multiple Choice
Which of the following best explains why all shareholders generally agree on the same goal for the financial manager, according to the fundamental accounting equation?
114
views
1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
Which of the following best represents the fundamental accounting equation?
A
Liabilities = Assets + Owner's Equity
B
Assets = Revenues - Expenses
C
Assets = Liabilities + Owner's Equity
D
Owner's Equity = Assets - Revenues
Verified step by step guidance1
Step 1: Understand the fundamental accounting equation, which is the foundation of financial accounting. It represents the relationship between a company's assets, liabilities, and owner's equity.
Step 2: Recall the correct formula for the fundamental accounting equation: \( \text{Assets} = \text{Liabilities} + \text{Owner's Equity} \). This equation ensures that a company's financial position is balanced.
Step 3: Analyze why the other options provided are incorrect. For example, \( \text{Liabilities} = \text{Assets} + \text{Owner's Equity} \) is incorrect because liabilities are not calculated by adding assets and owner's equity.
Step 4: Similarly, \( \text{Assets} = \text{Revenues} - \text{Expenses} \) is incorrect because revenues and expenses are part of the income statement, not the balance sheet equation.
Step 5: Finally, \( \text{Owner's Equity} = \text{Assets} - \text{Revenues} \) is incorrect because owner's equity is calculated as \( \text{Assets} - \text{Liabilities} \), not involving revenues directly. The correct answer is \( \text{Assets} = \text{Liabilities} + \text{Owner's Equity} \).
Related Videos
Related Practice
