Multiple Choice
Which of the following best describes the fundamental accounting equation?
125
views
1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
Which of the following is an accurate depiction of the fundamental accounting equation?
A
Equity = Assets + Liabilities
B
Assets = Liabilities + Equity
C
Assets = Revenues - Expenses
D
Liabilities = Assets + Equity
Verified step by step guidance1
Step 1: 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 obligations (Liabilities) or by the owner's interest (Equity). The equation is expressed as: Assets = Liabilities + Equity.
Step 2: Analyze the options provided in the problem. Compare each option to the fundamental accounting equation to determine which one accurately represents it.
Step 3: Option 1 states 'Equity = Assets + Liabilities.' This is incorrect because it does not align with the fundamental accounting equation. Equity is not the sum of Assets and Liabilities.
Step 4: Option 2 states 'Assets = Liabilities + Equity.' This is correct and matches the fundamental accounting equation. It accurately depicts the relationship between Assets, Liabilities, and Equity.
Step 5: Option 3 and Option 4 are also incorrect. Option 3 ('Assets = Revenues - Expenses') refers to the calculation of net income, not the fundamental accounting equation. Option 4 ('Liabilities = Assets + Equity') reverses the equation and is not accurate.
Related Videos
Related Practice
