Accounting Equation

What is the accounting equation?

• Assets = Liabilities + Equity

• Assets = Liabilities - Equity

• Liabilities = Assets + Equity

• Equity = Assets - Liabilities

1. If a company has total assets of $50,000 and total liabilities of $20,000, what is the equity?

• 1. $70,000

• 1. $30,000

• 1. $20,000

• 1. $50,000

If a company’s total assets are $100,000, and liabilities amount to $40,000, what is the equity of the company?

• $60,000

• $140,000

• $40,000

• $100,000

If a company purchases equipment for $5,000 on credit, what happens to the accounting equation?

• Assets increase by $5,000 and Equity increases by $5,000.

• Assets increase by $5,000 and Liabilities increase by $5,000

• Assets decrease by $5,000 and Equity increases by $5,000.

• Assets decrease by $5,000 and Liabilities increase by $5,000.

A company’s balance sheet shows assets of $75,000, liabilities of $30,000, and equity of $45,000. What would happen if the company pays off $5,000 of its liabilities in cash?

• Assets increase by $5,000, and liabilities decrease by $5,000

• Assets increase by $5,000, and equity increases by $5,000

• Assets decrease by $5,000, and liabilities decrease by $5,000

• Liabilities increase by $5,000, and equity decreases by $5,000

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