In the accounting equation, assets are equal to which two things?
A. Debits + equity
B. Debits + accounts
C. Liabilities + equity
D. Liabilities + accounts
Answer (2)
The accounting equation states: Assets = Liabilities + Equity.
Option C, Liabilities + equity, correctly represents this equation.
Options A, B, and D are incorrect as they include 'Debits' or 'accounts', which are not components of the accounting equation.
Therefore, the answer is C .
Explanation
Understanding the Accounting Equation The accounting equation is a fundamental principle in accounting that forms the basis of the double-entry accounting system. It represents the relationship between a company's assets, liabilities, and equity.
The Equation The accounting equation states that a company's assets are always equal to the sum of its liabilities and equity. This can be represented as: Assets = Liabilities + Equity
Analyzing the Options Now, let's examine the given options:
A. Debits + equity: Debits are an accounting entry and not a component of the accounting equation.
B. Debits + accounts: Debits and accounts are general accounting terms, not the components that balance with assets.
C. Liabilities + equity: This matches the accounting equation.
D. Liabilities + accounts: Accounts is a general term and not the specific component that balances with liabilities to equal assets.
Conclusion Therefore, the correct answer is C. Liabilities + equity .
Examples
The accounting equation is used in everyday life to understand personal finances. For example, if you own a car (an asset) worth $15,000 and you have a loan (a liability) of $5,000 on it, your equity (net worth) in the car is 10 , 000. T hi s m e an s : $15 , 000 ( A sse t s ) = $5 , 000 ( L iabi l i t i es ) + $10 , 000 ( Eq u i t y ) $. Understanding this relationship helps you manage your finances effectively.
The accounting equation states that Assets equal Liabilities plus Equity, illustrated as Assets = Liabilities + Equity . The correct answer to the question is C. Liabilities + equity . This equation is fundamental in understanding a company's financial position and maintaining balance in accounting records.
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