Mastering Balance Sheet Equations

What is the basic accounting equation?

• Equity = Assets - Liabilities

• Liabilities = Assets - Equity

• Assets + Liabilities = Equity

• Assets = Liabilities + Equity

If assets are $50,000 and liabilities are $30,000, what are the owner's equity?

• $10,000

• $50,000

• $20,000

• $30,000

How do you calculate total assets from liabilities and equity?

• Total Assets = Liabilities - Equity

• Total Assets = Liabilities * Equity

• Total Assets = Liabilities + Equity

• Total Assets = Equity - Liabilities

What happens to the accounting equation when a company takes a loan?

• Assets increase and equity decreases.

• Assets increase and liabilities increase.

• Assets decrease and liabilities decrease.

• Assets remain the same and liabilities increase.

If a company has $20,000 in liabilities and $80,000 in equity, what are its total assets?

• 120000

• 100000

• 80000

• 60000

What is the effect of purchasing inventory on the balance sheet?

• Purchasing inventory has no effect on the balance sheet.

• Purchasing inventory reduces equity on the balance sheet.

• Purchasing inventory increases assets on the balance sheet.

• Purchasing inventory decreases liabilities on the balance sheet.

How do you determine if a balance sheet is balanced?

• A balance sheet is balanced if total assets equal total liabilities only.

• A balance sheet is balanced if total liabilities equal total equity.

• A balance sheet is balanced if total assets are greater than total liabilities.

• A balance sheet is balanced if total assets equal total liabilities plus equity.

If a business sells an asset for cash, how does it affect the balance sheet?

• The balance sheet shows an increase in cash and a decrease in the asset sold, with no net change in total assets.

• The balance sheet shows a decrease in cash and an increase in liabilities.

• The asset sold is recorded as a liability on the balance sheet.

• Total assets increase due to the sale of the asset.

What is the relationship between current assets and current liabilities?

• Current assets and current liabilities are unrelated.

• Current assets are only important for long-term investments.

• Current assets should exceed current liabilities to ensure liquidity.

• Current liabilities should exceed current assets for stability.

How do retained earnings affect the owner's equity section of the balance sheet?

• Retained earnings decrease the owner's equity section of the balance sheet.

• Retained earnings have no effect on the owner's equity section of the balance sheet.

• Retained earnings are recorded as a liability on the balance sheet.

• Retained earnings increase the owner's equity section of the balance sheet.