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

Which of the following calculations is a formal expression of the fundamental accounting equation?

Assets = Liabilities + Equity

Equity = Assets - Revenues

Assets = Revenues - Expenses

Liabilities = Assets + Equity

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Verified step by step guidance

Step 1: Begin by understanding the fundamental accounting equation, which is the cornerstone of financial accounting. It states that Assets = Liabilities + Equity. This equation reflects the balance sheet structure, where a company's resources (assets) are funded by liabilities (debts) and equity (owner's investment).

Step 2: Analyze the options provided in the problem. The correct fundamental accounting equation is Assets = Liabilities + Equity. This equation ensures that the balance sheet remains balanced, as every asset is financed either through liabilities or equity.

Step 3: Review the other options to understand why they are incorrect. For example, Equity = Assets - Revenues is not correct because equity is derived from assets minus liabilities, not revenues. Similarly, Assets = Revenues - Expenses is incorrect because revenues and expenses are components of the income statement, not the balance sheet.

Step 4: Evaluate the option Liabilities = Assets + Equity. This is incorrect because liabilities are not the sum of assets and equity; rather, liabilities and equity together fund the assets.

Step 5: Conclude that the correct formal expression of the fundamental accounting equation is Assets = Liabilities + Equity, as it accurately represents the relationship between a company's financial position components.