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 statements best explains how the fundamental accounting equation applies to businesses?

It indicates that revenues must always equal expenses for a business to be profitable.

It requires that all business transactions affect only the income statement accounts.

It shows that a company's assets are always equal to the sum of its liabilities and owner's equity.

It states that assets are calculated by subtracting liabilities from owner's equity.

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Verified step by step guidance

Step 1: Begin by understanding the fundamental accounting equation, which is expressed as Assets = Liabilities + Owner's Equity. This equation is the foundation of double-entry accounting and ensures that the balance sheet remains balanced.

Step 2: Analyze the options provided in the problem. The first option, 'revenues must always equal expenses for a business to be profitable,' is incorrect because profitability is determined by the difference between revenues and expenses, not their equality.

Step 3: Evaluate the second option, 'all business transactions affect only the income statement accounts.' This is incorrect because business transactions can affect both the income statement (revenues and expenses) and the balance sheet (assets, liabilities, and equity).

Step 4: Consider the third option, 'a company's assets are always equal to the sum of its liabilities and owner's equity.' This is correct because it directly reflects the fundamental accounting equation, ensuring the balance sheet is balanced.

Step 5: Review the fourth option, 'assets are calculated by subtracting liabilities from owner's equity.' This is incorrect because the fundamental accounting equation states that assets are the sum of liabilities and owner's equity, not the result of subtraction.