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

Formal balance in accounting is best represented by which of the following equations?

Liabilities = Assets + Equity

Assets = Liabilities + Equity

Assets = Revenues - Expenses

Equity = Assets - Revenues

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Verified step by step guidance

Step 1: Understand the concept of the accounting equation, which is the foundation of double-entry bookkeeping. The formal balance in accounting is represented by the equation Assets = Liabilities + Equity.

Step 2: Analyze why this equation is correct. Assets represent the resources owned by a business, while liabilities and equity represent the claims against those resources. Liabilities are obligations to creditors, and equity represents the owner's residual interest.

Step 3: Compare the given options to the formal accounting equation. The correct equation is Assets = Liabilities + Equity, which ensures that the balance sheet remains balanced.

Step 4: Eliminate incorrect options by understanding their definitions. For example, 'Liabilities = Assets + Equity' is incorrect because liabilities are not the sum of assets and equity. Similarly, 'Assets = Revenues - Expenses' is incorrect because revenues and expenses are part of the income statement, not the balance sheet.

Step 5: Confirm that 'Equity = Assets - Revenues' is also incorrect because equity is calculated as Assets - Liabilities, not Assets - Revenues. This reinforces that the correct answer is Assets = Liabilities + Equity.