Question

Double-entry bookkeeping implies that: A. profits cannot be negative because profit equals the value of final output less costs. B. profits fill the gap between the sum of employee compensation, rents and interest on the one hand and the value of final output on the other hand. C. aggregate income net of profits is less than the value of final output because profit can add or take away from final output. D. aggregate income net of profits is greater than the value of final output because profit can add or take away from final output.

Answer 1

The correct answer is letter "B": profits fill the gap between the sum of employee compensation, rents and interest on the one hand and the value of final output on the other hand.

Step-by-step explanation:

The double-entry accounting describes the form that transactions are recorded. The accounts are entered as debits and credits under the accounting method. Each account entered will adjust one account and has an equivalent but opposite effect on another so that the debit account always equals the credit account. This sustains the basic accounting equation of:

Assets = Liabilities + Owner's equities

Thus, profits are calculated by subtracting expenses such as wages, rent, and interest from a firm's total revenue which is the sum obtained from the sales of the company's output.