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 correctly states the fundamental accounting equation?

Assets = Revenues - Expenses

Liabilities = Assets + Owner's Equity

Owner's Equity = Assets - Revenues

Assets = Liabilities + Owner's Equity

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Verified step by step guidance

Understand the fundamental accounting equation, which is the cornerstone of financial accounting. It states that the resources owned by a business (Assets) are financed either by debts (Liabilities) or by the owner's investment (Owner's Equity).

Break down the equation: Assets = Liabilities + Owner's Equity. This means that the total value of assets must equal the sum of liabilities and owner's equity.

Analyze why the other options are incorrect: 'Assets = Revenues - Expenses' is not correct because revenues and expenses are part of the income statement, not the balance sheet. They do not directly define the relationship between assets, liabilities, and equity.

Evaluate the second incorrect option: 'Liabilities = Assets + Owner's Equity' is incorrect because liabilities are not the sum of assets and owner's equity. Instead, liabilities are one component of the equation that balances with assets and owner's equity.

Confirm the correct equation: 'Assets = Liabilities + Owner's Equity' is the correct representation of the fundamental accounting equation, as it reflects the balance sheet structure and the relationship between these three key components.