Question

In the context of the balance sheet, which of the following serves to be the rationale behind the accounting equation?

a. The value of a firm's assets must be equal to the owners' equity and the revenue earned by the firm's activities.
b. The average amount spent on the salary of the employees of a firm should be equal to the value of the assets of the firm.
c. A firm must finance the purchase of their assets, and the owners and nonowners should contribute toward it.
d. A firm's assets should be bought through the contingency fund of the firm and partly through public funding.

Answer 1

The rationale behind the accounting equation is that a firm must finance the purchase of their assets, and the owners and nonowners should contribute toward it.

Step-by-step explanation:

The rationale behind the accounting equation in the context of the balance sheet is option c: A firm must finance the purchase of their assets, and the owners and nonowners should contribute toward it.

The accounting equation states that assets must always equal liabilities plus owners' equity. This means that the value of a firm's assets is financed by both the owners' investment and any liabilities owed to nonowners.

For example, if a firm purchases equipment for $10,000, they can finance it by investing $5,000 of their own money and borrowing $5,000 from a bank. This way, the assets on the balance sheet (equipment worth $10,000) are financed by the owners' equity ($5,000) and the liability owed to the bank ($5,000).