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 represents the fundamental accounting equation, also known as the basic wealth formula?

Assets = Revenues - Expenses

Owner's Equity = Assets - Revenues

Assets = Liabilities + Owner's Equity

Liabilities = Assets + Owner's Equity

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Verified step by step guidance

Understand that the fundamental accounting equation is the cornerstone of financial accounting, representing the relationship between a company's resources (assets), obligations (liabilities), and ownership interest (owner's equity).

Recall the correct formula for the fundamental accounting equation: \( \text{Assets} = \text{Liabilities} + \text{Owner's Equity} \). This equation ensures that the balance sheet remains balanced.

Analyze why the other options are incorrect: For example, \( \text{Assets} = \text{Revenues} - \text{Expenses} \) is not correct because revenues and expenses are part of the income statement, not the balance sheet. Similarly, \( \text{Liabilities} = \text{Assets} + \text{Owner's Equity} \) is incorrect because liabilities are not the sum of assets and equity.

Recognize that the fundamental accounting equation is used to prepare the balance sheet, which provides a snapshot of a company's financial position at a specific point in time.

Apply this equation in practice by ensuring that any transaction affecting assets, liabilities, or owner's equity maintains the balance of \( \text{Assets} = \text{Liabilities} + \text{Owner's Equity} \).