U3, AOS 1 - KK5 - Accounting Equation Flashcards
What is the accounting equation?
Assets = Liabilities + Owner’s Equity
True or False: The accounting equation must always balance.
True
Fill in the blank: In the accounting equation, liabilities represent ________.
obligations or debts
What does owner’s equity represent in the accounting equation?
The residual interest in the assets of the entity after deducting liabilities.
Which of the following is NOT a component of the accounting equation? A) Assets B) Liabilities C) Revenue D) Owner’s Equity
C) Revenue
If a company has $50,000 in assets and $20,000 in liabilities, what is the owner’s equity?
$30,000
True or False: An increase in liabilities will always decrease owner’s equity.
False
What happens to the accounting equation when a company issues new stock?
Assets and owner’s equity both increase.
Fill in the blank: The accounting equation is fundamental to ________ accounting.
double-entry
What is the relationship between assets, liabilities, and owner’s equity?
They must always balance, meaning total assets are funded by total liabilities and owner’s equity.
True or False: Owner’s equity can be negative.
True
What does an increase in assets without a corresponding increase in liabilities indicate?
An increase in owner’s equity.
If liabilities decrease while assets remain the same, what happens to owner’s equity?
Owner’s equity increases.
What are the two main components of owner’s equity?
Contributed capital and retained earnings.
Multiple Choice: Which of the following transactions would increase liabilities? A) Purchasing equipment with cash B) Borrowing money from a bank C) Paying off a loan D) Selling stock
B) Borrowing money from a bank
