Question

Which of the following statements explain(s) how the accounting equation applies to businesses? a. The equation states that Assets Liabilities - Equity b. The equation reflects the foct that, at any point in time, total revenues will always equal total abilities and assets. c. The equation applies to all transactions d. The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners e. The relation of assets, liabilities and equity is reflected in the equation f. The equation states that Revenues - Expenses = Assets

Answer 1

The accounting equation, Assets = Liabilities + Equity, is essential to understanding a business's financial structure, ensuring that the value of assets always equals the total of liabilities and owners’ equity.

Step-by-step explanation:

The accounting equation applies to businesses and is fundamental to understanding how a company's finances are structured. It states that Assets = Liabilities + Equity. Assets are what the company owns, liabilities are what it owes to others, and equity represents the owners' share of the assets. This equation ensures that a company's balance sheet is always balanced, meaning that the total value of the company's assets will always match the combined value of its liabilities and the owners' equity. For example, in a bank's T-account, the assets on the left side can include reserves and loans made, while the liabilities on the right side can include customer deposits. The net worth or equity is calculated by subtracting total liabilities from total assets. This net worth is also referred to as the bank's capital or owner's equity and is included on the liabilities side to ensure the balance sheet balances to zero.