Multiple Choice
Which of the following is the most accurate depiction of the fundamental accounting equation?
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1. Introduction to Accounting
Fundamental Accounting Equation
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Which of the following equations represents the balance sheet equation, also known as the fundamental accounting equation?
A
Liabilities = Assets + Equity
B
Assets = Liabilities + Equity
C
Assets = Revenues - Expenses
D
Equity = Assets - Revenues
Verified step by step guidance1
Understand the fundamental accounting equation, which is the basis of the balance sheet. It represents the relationship between a company's assets, liabilities, and equity.
Recall that assets are the resources owned by the company, liabilities are the obligations owed to outsiders, and equity represents the owner's residual interest in the company.
The fundamental accounting equation is expressed as: . This equation ensures that the balance sheet remains balanced.
Analyze the options provided in the problem. The correct equation is , as it aligns with the fundamental accounting principle.
Reject the other options because they do not accurately represent the fundamental accounting equation. For example, is incorrect, and pertains to the income statement, not the balance sheet.
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