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

The balance sheet is set up to reflect the fundamental accounting equation. This equation shows:

Assets = Liabilities + Owner's Equity

Assets = Revenues - Expenses

Liabilities = Assets + Owner's Equity

Owner's Equity = Assets - Revenues

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Verified step by step guidance

Understand the fundamental accounting equation, which is the foundation of the balance sheet. It states that Assets = Liabilities + Owner's Equity. This equation ensures that the balance sheet remains balanced.

Analyze the options provided in the problem. The correct equation must align with the fundamental accounting principle that assets are financed either through liabilities (debts) or owner's equity (investments).

Option 1: 'Assets = Liabilities + Owner's Equity' is correct because it reflects the fundamental accounting equation and the structure of the balance sheet.

Option 2: 'Assets = Revenues - Expenses' is incorrect because revenues and expenses are components of the income statement, not the balance sheet.

Option 3: 'Liabilities = Assets + Owner's Equity' and Option 4: 'Owner's Equity = Assets - Revenues' are incorrect because they do not align with the fundamental accounting equation. Carefully compare each option to the correct equation to confirm the answer.