Multiple Choice
Which of the following statements best represents the fundamental accounting equation?
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1. Introduction to Accounting
Fundamental Accounting Equation
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Which of the following correctly represents the fundamental accounting equation?
A
Equity = Assets + Liabilities
B
Liabilities = Assets + Equity
C
Assets = Revenues - Expenses
D
Assets = Liabilities + Equity
Verified step by step guidance1
Understand the fundamental accounting equation, which is the foundation of financial accounting. It states that the resources owned by a company (Assets) are financed either by borrowing (Liabilities) or by the owner's investment (Equity).
The equation is expressed as: . This equation ensures that the balance sheet remains balanced.
Analyze the options provided in the problem. Compare each option to the fundamental accounting equation to determine which one matches correctly.
Option 1 states: . This is incorrect because Equity is not calculated by adding Assets and Liabilities.
Option 4 states: . This matches the fundamental accounting equation and is the correct representation.
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