Multiple Choice
If equity equals \$100 and liabilities equal \$50, what is the value of assets according to the fundamental accounting equation?
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1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
Which of the following is a true statement about the fundamental accounting equation as it relates to accounting for business activities?
A
Owner's Equity = Assets - Revenues
B
Assets = Liabilities + Owner's Equity
C
Assets = Revenues - Expenses
D
Liabilities = Assets + Owner's Equity
Verified step by step guidance1
Step 1: Begin by understanding the fundamental accounting equation, which is the cornerstone of financial accounting. The equation is expressed as: Assets = Liabilities + Owner's Equity.
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 - Revenues' does not align because revenues are not part of the fundamental equation.
Step 3: Evaluate the second option, 'Assets = Liabilities + Owner's Equity.' This matches the fundamental accounting equation and is therefore correct.
Step 4: Review the third option, 'Assets = Revenues - Expenses.' This is incorrect because revenues and expenses are components of the income statement, not the balance sheet equation.
Step 5: Assess the fourth option, 'Liabilities = Assets + Owner's Equity.' This is incorrect because it reverses the fundamental accounting equation. Liabilities are not equal to the sum of assets and owner's equity.
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