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 best describes the purpose of the fundamental accounting equation?

It shows the relationship between assets, liabilities, and owner's equity in a business.

It provides guidelines for preparing cash flow statements.

It establishes the rules for recording depreciation expenses.

It determines the amount of revenue a company can recognize in a period.

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Verified step by step guidance

Understand the fundamental accounting equation: Assets = Liabilities + Owner's Equity. This equation is the foundation of double-entry accounting and represents the relationship between a company's resources (assets) and the claims against those resources (liabilities and owner's equity).

Recognize that the fundamental accounting equation is used to ensure that the balance sheet remains balanced, reflecting the financial position of a business at a specific point in time.

Eliminate options that do not directly relate to the fundamental accounting equation. For example, preparing cash flow statements, recording depreciation expenses, and determining revenue recognition are separate accounting concepts and processes.

Focus on the option that describes the relationship between assets, liabilities, and owner's equity, as this is the primary purpose of the fundamental accounting equation.

Conclude that the correct answer is the option that states the fundamental accounting equation shows the relationship between assets, liabilities, and owner's equity in a business.