Question

11) The accounting equation is defined as:

A) Assets = Liabilities + Stockholders' Equity.

B) Assets = Liabilities − Stockholders' Equity.

C) Net Income = Revenues − Expenses.

D) Liabilities + Revenues = Assets.

Answer 1

Solution:

As per the basic accounting equation is defined as :

Assets = Liabilities + Stockholders’ Equity

The balance sheet does reflect the accounting equation: Assets = Liabilities + Stockholders’ Equity.

The Total of assets side of the balance sheet will always be equal to the total of liabilities and Stockholders’ Equity if all the transactions have been recorded correctly.

The total assets comprise of Current assets and Fixed Assets.

The liabilities comprise of Current liabilities and Long term liabilities.

The difference between the Assets and Liabilities i..e, Assets - Liabilities is equal to the Stockholder's Equity

The solution is Option A) Assets = Liabilities + Stockholders' Equity.