Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Fundamental Accounting Equation

Financial Accounting

1. Introduction to Accounting

Fundamental Accounting Equation

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Multiple Choice

Revenues have what effect on the fundamental accounting equation?

They increase liabilities and decrease assets.

They decrease liabilities and decrease equity.

They increase assets and increase equity.

They have no effect on the accounting equation.

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Verified step by step guidance

Understand the fundamental accounting equation: Assets = Liabilities + Equity. This equation represents the relationship between a company's resources (assets), obligations (liabilities), and ownership interest (equity).

Revenues are the income earned by a company from its operations, such as sales of goods or services. Revenues contribute to the company's equity because they increase retained earnings, which is a component of equity.

When a company earns revenue, it typically receives cash or accounts receivable (an asset). This means that revenues increase the asset side of the equation.

Simultaneously, the increase in revenues also increases equity because revenues contribute to net income, which is part of retained earnings under equity.

Therefore, the effect of revenues on the fundamental accounting equation is that they increase assets and increase equity, maintaining the balance of the equation.