Question

If a company has a profit, which of the following is true?

1) Assets will be equal to liabilities plus owners' equity.
2) Assets will be less than liabilities plus owners' equity.
3) Assets will be greater than liabilities plus owners' equity.
4) Owners' equity will be greater than its assets.

Answer 1

When a company has a profit, its assets will be equal to the sum of its liabilities and owner's equity, as profits increase the owner's equity, consequently increasing assets.

Step-by-step explanation:

If a company has a profit, it means that the company's revenues exceed its expenses, thus increasing the owner's equity. According to the fundamental accounting equation, Assets = Liabilities + Owner's Equity, so if a profit increases owner's equity, it must also increase assets assuming liabilities remain unchanged. Therefore, the statement that is true when a company has a profit is: Assets will be equal to liabilities plus owners' equity.