Podcast
Questions and Answers
What is the accounting equation?
What is the accounting equation?
- Liabilities - Equity = Assets
- Assets + Equity = Liabilities
- Assets = Liabilities + Equity (correct)
- Equity = Assets - Liabilities
What are assets?
What are assets?
Debit based
What are liabilities?
What are liabilities?
Credit based
What is equity?
What is equity?
What is income?
What is income?
What are expenses?
What are expenses?
Flashcards
Accounting Equation
Accounting Equation
Assets equal Liabilities plus Equity
Assets
Assets
Things of value owned by a business
Liabilities
Liabilities
Amounts owed by a business to others
Equity
Equity
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Income
Income
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Expenses
Expenses
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Study Notes
Accounting Basics
- Accounting Equation: Represents the relationship between a company's assets, liabilities, and equity. Formula: Assets = Liabilities + Equity.
Key Terms
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Assets: Resources owned by a business; they increase with debits, indicating ownership and value.
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Liabilities: Obligations or debts that a business needs to settle; they increase with credits, representing amounts owed to external parties.
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Equity: The owner's interest in the business, calculated as the residual interest after liabilities are deducted from assets; also increases with credits.
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Income: Earnings generated by business activities; increases with debits, reflecting profitable operations.
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Expenses: Costs incurred in the process of earning income; they increase with credits, indicating reductions in equity.
Fundamental Relationships
- Debits and Credits:
- "Debit based" terms (Assets, Income) reflect additions to resources or earnings.
- "Credit based" terms (Liabilities, Equity, Expenses) denote increases in obligations or costs associated with operations.
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