Accounting Equation & Common Accounting Formulas

What is the basic accounting equation for a sole proprietorship?

• Assets = Liabilities + Owner's Equity

• Assets = Liabilities x Owner's Equity

• Assets = Liabilities - Owner's Equity

• Assets = Owner's Equity - Liabilities

In the accounting equation, what does equity represent in a publicly held corporation?

• Owner's Equity

• Partner's Equity

• Shareholder's Equity

• Investor's Equity

Which of the following is NOT a component of the accounting equation?

• Assets

• Equity

• Liabilities

• Revenue

What is the purpose of the double-entry accounting system?

• To increase the number of accounts

• To simplify the accounting process

• To balance the accounts by having corresponding debit and credit entries

• To ensure each transaction is recorded twice

How is gross profit calculated?

• Sales - Cost of Goods Sold

• Sales + Cost of Goods Sold

• Sales x Cost of Goods Sold

• Sales / Cost of Goods Sold

What does the current ratio measure?

• The ratio of liabilities to equity

• The ratio of sales to expenses

• The ratio of assets to liabilities

• The ratio of profit to sales

Which formula is used to calculate the break-even point?

• Fixed costs - (Sales price per unit / Variable cost per unit)

• Fixed costs x (Sales price per unit + Variable cost per unit)

• Fixed costs / (Sales price per unit - Variable cost per unit)

• Fixed costs + (Sales price per unit - Variable cost per unit)

What is the expanded accounting equation used for?

• To calculate net income

• To determine shareholder equity details

• To find the break-even point

• To assess current liabilities