Question

List three equations to show the relationship among TA (total assets), TD (total debt), TE (total equity), CA (current assets), FA (fixed assets), CL (current liabilities), and LTD (long term debt) Wrong example: Current ratio =CA/CL because current ratio is a new term, not belong to above terms. A=B+C and B=A−C are counted as the same one

Answer 1

The three fundamental relationships in business accounting between Total Assets, Total Debt, Total Equity, Current Assets, Fixed Assets, Current Liabilities, and Long Term Debt are expressed as TA = CA + FA, TA = TD + TE, and TD = CL + LTD.

Step-by-step explanation:

The relationship among TA (total assets), TD (total debt), TE (total equity), CA (current assets), FA (fixed assets), CL (current liabilities), and LTD (long term debt) can be described by the following three equations:

• TA = CA + FA: This equation shows that total assets (TA) is the sum of current assets (CA) and fixed assets (FA).
• TA = TD + TE: This represents the accounting equation where total assets (TA) are the sum of total debt (TD) and total equity (TE).
• TD = CL + LTD: Total debt (TD) is composed of current liabilities (CL) and long-term debt (LTD).

These equations are essential for understanding the financial position and health of a firm. They illustrate the makeup of a company's finances and the balance between assets, liabilities, and equity.