Multiple Choice
When a company exchanges one asset for another asset of equal value, what is the effect on owner's equity according to the fundamental accounting equation?
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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
Which of the following is NOT a satisfactory statement of the fundamental accounting equation?
A
Owner's Equity = Assets - Liabilities
B
Assets - Liabilities = Owner's Equity
C
Assets + Liabilities = Owner's Equity
D
Assets = Liabilities + Owner's Equity
Verified step by step guidance1
Step 1: Understand the fundamental accounting equation, which is expressed as Assets = Liabilities + Owner's Equity. This equation represents the balance sheet structure and ensures that a company's financial position is balanced.
Step 2: Analyze each option provided in the problem to determine whether it aligns with the fundamental accounting equation. For example, 'Owner's Equity = Assets - Liabilities' is a rearranged form of the equation and is valid.
Step 3: Evaluate the second option, 'Assets - Liabilities = Owner's Equity.' This is also a rearranged form of the fundamental accounting equation and is valid.
Step 4: Examine the third option, 'Assets + Liabilities = Owner's Equity.' This does not align with the fundamental accounting equation and is incorrect because it misrepresents the relationship between assets, liabilities, and owner's equity.
Step 5: Confirm the fourth option, 'Assets = Liabilities + Owner's Equity,' which is the standard form of the fundamental accounting equation and is correct.
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