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 best describes the relationship between assets, liabilities, and net worth (owner's equity) according to the fundamental accounting equation?

Assets = Liabilities + Owner's Equity

Assets + Liabilities = Owner's Equity

Assets = Liabilities - Owner's Equity

Assets - Liabilities = Owner's 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. The equation is expressed as:

A = L + OE

, where A represents Assets, L represents Liabilities, and OE represents Owner's Equity.

Step 2: Recognize that this equation reflects the balance sheet structure, where assets are the resources owned by the business, liabilities are the obligations owed to creditors, and owner's equity represents the residual interest in the assets after deducting liabilities.

Step 3: Analyze the options provided in the problem. The correct relationship must align with the fundamental accounting equation:

A = L + OE

. This equation ensures that the balance sheet remains balanced.

Step 4: Evaluate the incorrect options. For example, 'Assets + Liabilities = Owner's Equity' is incorrect because it does not reflect the proper relationship; liabilities are added to owner's equity to equal assets. Similarly, 'Assets = Liabilities - Owner's Equity' and 'Assets - Liabilities = Owner's Equity' are incorrect as they misrepresent the equation's structure.

Step 5: Conclude that the correct answer is 'Assets = Liabilities + Owner's Equity,' as it accurately represents the fundamental accounting equation and the relationship between these three components.