Question

Prove the equality of the accounting equation:

A. Assets = Liabilities + Owner’s Equity
B. Liabilities = Assets + Owner’s Equity
C. Owner’s Equity = Assets - Liabilities
D. Assets + Liabilities = Owner’s Equity

Answer 1

The accounting equation states that assets equal liabilities plus owner's equity. It is used to track the financial position of a business.

Step-by-step explanation:

The accounting equation states that Assets = Liabilities + Owner’s Equity. This equation is one of the fundamental principles of accounting and is used to track the financial position of a business. It shows that a company's assets, which are the resources it owns or controls, must equal the sum of its liabilities, which are the debts or obligations it owes to others, and its owner's equity, which represents the investment or stake of the owner in the business.

For example, let's consider a scenario where a business has $100,000 in assets, $50,000 in liabilities, and $50,000 in owner's equity. Using the accounting equation, we can verify its accuracy:

• Assets ($100,000) = Liabilities ($50,000) + Owner’s Equity ($50,000)

As both sides of the equation are equal, it confirms the equality of the accounting equation.