Understanding the Accounting Equation

What is the accounting equation?

• A) Assets = Liabilities + Owner's Equity

• B) Assets = Liabilities - Owner's Equity

• C) Assets = Liabilities x Owner's Equity

• D) Assets = Liabilities / Owner's Equity

Fill in the blank: The accounting equation is the foundation of ________ accounting.

• single-entry

• double-entry

• triple-entry

• cash-based

What is a cash account?

• An account used to record the amount of money held in bank accounts

• An account used to record inventory

• An account used to record liabilities

• An account used to record prepaid rent.

Accounts receivable are the amounts due as the result of selling goods or services on credit. Fill in the blank: Accounts receivable are also called ________.

• Inventory

• Cash account

• On account

• Prepaid insurance

What are long-term assets?

• Resources intended to be turned into cash within a year

• Resources not intended to be turned into cash within a year

• Consumable supplies

• Short-term investments.

Fill in the blank: _______ assets are tangible, long-term assets used in business operations.

• A) Intangible

• B) Fixed

• C) Liquid

• D) Current

What are current liabilities?

• Obligations due within one year

• Obligations due after one year

• Owner's investment in the business

• Value of an asset less liabilities.

Equity is the value of an asset less the value of all ______.

• Liabilities

• Assets

• Owner's equity

• Current liabilities

What is revenue?

• Income from investments

• Income generated from the sale of goods or services

• Income from loans

• Income from donations.

The accounting equation is Assets = Liabilities + ______.

• Revenue

• Expenses

• Owner’s Equity

• Profit