The accounting equation

Question 1

This equation means that the total assets of the business are contributed by the owner and creditors.

Answer 1

Assets = Liabilities + Owner’s Equity
(A = L + OE)

Question 2

It means that the assets of the business are contributed only by the owner.

Answer 2

Assets = Owner’s Equity

Question 3

It shows the equity or capital of the owner from the total assets of the business after deducting the claims of the creditor.

Answer 3

Assets - Liabilities = Owner’s Equity
(A - L = OE)

Question 4

It shows the obligation of the business to its creditors. It gives the debts of the business to people other than the owner.

Answer 4

Assets - Owner’s Equity = Liabilities
(A - OE = L)

Question 5

the Owner’s Equity section may be divided into the following parts:

Answer 5

Capital or Initial investment
Additional Investment
Withdrawal
Income
Deduction or expenses