In the context of the fundamental accounting equation, savings should be treated as which of the following?

• A. Gross income
• B. Expenditure
• C. None of the above
• D. Net income

Answer: (C)

Verified step by step guidance

1. Understand the fundamental accounting equation: Assets = Liabilities + Equity. This equation is the foundation of financial accounting and helps classify financial transactions.
2. Savings are typically considered part of equity because they represent retained earnings or accumulated wealth that has not been spent or distributed.
3. Gross income refers to total earnings before any deductions, such as taxes or expenses. Savings are not classified as gross income because they are derived after expenses and taxes are accounted for.
4. Expenditure refers to money spent on goods, services, or obligations. Savings are not classified as expenditure because they represent money set aside rather than spent.
5. Net income is the profit remaining after all expenses, taxes, and costs have been deducted from gross income. Savings can be derived from net income but are not synonymous with it. Therefore, savings are not classified as gross income, expenditure, or net income directly.