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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following statements about the fundamental accounting equation is FALSE?

The equation ensures that a company's resources are always equal to the claims against those resources.

The fundamental accounting equation is: \( \text{Assets} = \text{Liabilities} + \text{Equity} \).

If a company purchases equipment with cash, total assets will decrease.

The fundamental accounting equation forms the basis for double-entry bookkeeping.

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the fundamental accounting equation, which is expressed as: \( \text{Assets} = \text{Liabilities} + \text{Equity} \). This equation ensures that a company's resources (assets) are always equal to the claims against those resources (liabilities and equity).

Step 2: Analyze the statement 'If a company purchases equipment with cash, total assets will decrease.' Purchasing equipment with cash involves exchanging one asset (cash) for another asset (equipment). This transaction does not change the total value of assets; it only reallocates the composition of assets.

Step 3: Evaluate the other statements provided in the problem. The fundamental accounting equation forms the basis for double-entry bookkeeping, which ensures that every transaction affects at least two accounts, maintaining the balance of the equation.

Step 4: Identify the false statement. Based on the analysis, the statement 'If a company purchases equipment with cash, total assets will decrease' is incorrect because total assets remain unchanged; only the type of asset changes.

Step 5: Conclude that the fundamental accounting equation is a foundational concept in financial accounting, ensuring the balance between assets, liabilities, and equity, and guiding the principles of double-entry bookkeeping.