Multiple Choice
The fundamental accounting equation states: Assets =
23
views
1. Introduction to Accounting
Fundamental Accounting Equation
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Another term for owners' equity is:
A
Shareholders' equity
B
Retained earnings
C
Net income
D
Total assets
Verified step by step guidance1
Understand the concept of owners' equity: Owners' equity represents the residual interest in the assets of a business after deducting liabilities. It is essentially the owners' claim on the company's net assets.
Recognize the alternative term: Owners' equity is often referred to as shareholders' equity in the context of corporations. This is because shareholders are the owners of the corporation.
Differentiate between the options: Retained earnings, net income, and total assets are related to financial accounting but are not synonymous with owners' equity. Retained earnings are a component of owners' equity, net income contributes to retained earnings, and total assets are part of the accounting equation.
Recall the accounting equation: The accounting equation is \( \text{Assets} = \text{Liabilities} + \text{Owners' Equity} \). This helps clarify that owners' equity (or shareholders' equity) is distinct from total assets.
Conclude that the correct term for owners' equity is shareholders' equity, as it directly represents the ownership interest in the company.
8:45mWatch next
Master Fundamental Accounting Equation with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Fundamental Accounting Equation practice set
Problem sets built by lead tutorsExpert video explanations