Multiple Choice
When a company exchanges one asset for another asset of equal value, what is the effect on owner's equity according to the fundamental accounting equation?
124
views
1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
Which of the following is NOT a satisfactory statement of the fundamental accounting equation?
A
Owner's Equity = Assets - Liabilities
B
Assets - Liabilities = Owner's Equity
C
Assets + Liabilities = Owner's Equity
D
Assets = Liabilities + Owner's Equity
Verified step by step guidance1
Step 1: Understand the fundamental accounting equation, which is expressed as Assets = Liabilities + Owner's Equity. This equation represents the balance sheet structure and ensures that a company's financial position is balanced.
Step 2: Analyze each option provided in the problem to determine whether it aligns with the fundamental accounting equation. For example, 'Owner's Equity = Assets - Liabilities' is a rearranged form of the equation and is valid.
Step 3: Evaluate the second option, 'Assets - Liabilities = Owner's Equity.' This is also a rearranged form of the fundamental accounting equation and is valid.
Step 4: Examine the third option, 'Assets + Liabilities = Owner's Equity.' This does not align with the fundamental accounting equation and is incorrect because it misrepresents the relationship between assets, liabilities, and owner's equity.
Step 5: Confirm the fourth option, 'Assets = Liabilities + Owner's Equity,' which is the standard form of the fundamental accounting equation and is correct.
Related Videos
Related Practice
