Multiple Choice
To develop a standard or benchmark in accounting, firms need to start with which of the following?
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1. Introduction to Accounting
Fundamental Accounting Equation
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Shareholders' equity is another common term for which of the following?
A
Total liabilities
B
Retained earnings
C
Owner's equity
D
Total assets
Verified step by step guidance1
Understand the concept of Shareholders' Equity: Shareholders' equity represents the owners' claim on the assets of a company after all liabilities have been deducted. It is also referred to as Owner's Equity.
Break down the components of Shareholders' Equity: It typically includes common stock, preferred stock, retained earnings, and additional paid-in capital. These are the funds contributed by shareholders and the profits retained by the company.
Clarify why Shareholders' Equity is not Total Liabilities: Total liabilities represent the obligations a company owes to external parties, such as loans and accounts payable, and are not part of the owners' claim.
Clarify why Shareholders' Equity is not Retained Earnings alone: Retained earnings are a part of Shareholders' Equity but do not encompass the entire equity. Shareholders' Equity includes other components like contributed capital.
Clarify why Shareholders' Equity is not Total Assets: Total assets represent everything a company owns, including liabilities and equity. Shareholders' Equity is the portion of assets remaining after liabilities are subtracted.
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