Multiple Choice
Which of the following best describes the purpose of the fundamental accounting equation?
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1. Introduction to Accounting
Fundamental Accounting Equation
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Which of the following best represents the Fundamental Accounting Equation?
A
Equity = Assets + Liabilities
B
Liabilities = Assets + Equity
C
Assets = Liabilities + Equity
D
Assets = Revenues - Expenses
Verified step by step guidance1
Understand the Fundamental Accounting Equation, which is the foundation of financial accounting. It states that a company's assets are financed by liabilities and equity.
The equation is expressed as: . This means that all resources owned by the company (assets) are funded either by debts (liabilities) or by the owners' investment (equity).
Review the options provided in the problem. Compare each option to the correct Fundamental Accounting Equation to identify the correct representation.
Option 1, , is incorrect because equity is not calculated by adding assets and liabilities.
Option 3, , is correct as it accurately represents the Fundamental Accounting Equation.
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