Understanding the Accounting Equation

What is the basic accounting equation?

• Assets - Liabilities = Equity

• Assets = Liabilities + Equity

• Assets + Liabilities = Equity

• Liabilities = Assets - Equity

Identify the components of the accounting equation.

• Equity = Assets - Liabilities

• Liabilities = Assets - Equity

• Assets = Liabilities + Equity

• Assets + Liabilities = Equity

How does the accounting equation relate to a balance sheet?

• The accounting equation (Assets = Liabilities + Equity) is the foundation of a balance sheet, ensuring that total assets equal total liabilities plus equity.

• The accounting equation states that Assets = Equity - Liabilities.

• The accounting equation is irrelevant to the balance sheet.

• The balance sheet only includes assets and liabilities, not equity.

What happens to the accounting equation when a company takes a loan?

• Assets increase and Liabilities increase.

• Assets increase and Equity decreases.

• Assets remain the same and Liabilities increase.

• Assets decrease and Liabilities decrease.

Explain how revenue affects the accounting equation.

• Revenue increases assets and owner's equity in the accounting equation.

• Revenue only affects expenses in the accounting equation.

• Revenue has no impact on assets or liabilities.

• Revenue decreases liabilities and owner's equity.