Q: Which of the following best represents the fundamental accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Question 1

Which of the following best represents the fundamental accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 2

A company has total assets of $$120,000 and total liabilities of 80$$,000. What is the company's equity?

Accepted Answer

$$40,000$$

Question 3

Which of the following is NOT considered a current asset?

Accepted Answer

Land

Question 4

If a company purchases equipment for $$50,000 by paying 10$$,000 in cash and financing the remaining $40,000, how does this transaction affect the accounting equation?

Accepted Answer

Assets increase by $$50,000; liabilities increase by 40$$,000; assets decrease by $10,000

Question 5

Which of the following is a component of equity?

Accepted Answer

Retained earnings

Question 6

A company has liabilities of $$25,000 and assets of 35$$,000. What is the company's equity?

Accepted Answer

$$10,000$$

Question 7

Which of the following best describes 'Paid-in Capital'?

Accepted Answer

The amount that shareholders invest in the company

Question 8

If a company has liabilities of $$85,000 and equity of 25$$,000, what are the company's assets worth?

Accepted Answer

$$110,000$$

Question 9

Which of the following transactions would increase both assets and equity?

Accepted Answer

Owner invests cash into the business

Question 10

Which of the following is an example of a long-term liability?

Accepted Answer

Bank loan payable in five years

Question 11

A company earns $$15,000 in revenue and incurs 10$$,000 in expenses. What is the effect on equity?

Accepted Answer

Equity increases by $$5,000$$

Question 12

Which of the following best describes 'Retained Earnings'?

Accepted Answer

Profits kept in the company after dividends are paid

Question 13

If a company pays $5,000 in dividends, how does this affect the accounting equation?

Accepted Answer

Assets decrease by $$5,000; equity decreases by 5$$,000

Question 14

Which of the following is NOT a component of equity?

Accepted Answer

Accounts payable

Question 15

A company has assets of $$200,000 and liabilities of 150$$,000. If the company issues new shares worth $20,000, what is the new equity?

Accepted Answer

$$70,000$$

Question 16

Which of the following best describes the effect of earning revenue on the accounting equation?

Accepted Answer

Assets increase; equity increases

Question 17

A company purchases land for $100,000 by issuing a note payable. How does this transaction affect the accounting equation?

Accepted Answer

Assets increase by $$100,000; liabilities increase by 100$$,000

Question 18

Which of the following is an example of a transaction that decreases both assets and liabilities?

Accepted Answer

Paying off accounts payable with cash

Question 19

If a company has assets of $$75,000 and equity of 30$$,000, what are its liabilities?

Accepted Answer

$$45,000$$

Question 20

Which of the following best describes the role of dividends in the accounting equation?

Accepted Answer

Dividends decrease equity

The Fundamental Accounting Equation: Assets, Liabilities, and Equity

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