12 Questions
What is the accounting equation?
Capital = Assets - Liabilities
How is capital defined in the accounting equation?
The residual interest in the assets of a business after deducting its liabilities
What would happen to capital if a business sold all of its assets and settled all of its liabilities?
Capital would remain unchanged
In the case of a limited liability company, what is capital referred to as?
Equity
What does capital represent in a business?
Total assets invested by the owners
What is the purpose of the accounting equation?
To demonstrate the relationship between assets, liabilities, and capital
In the accounting equation, liabilities are subtracted from assets to calculate capital.
True
The accounting equation is only applicable to limited liability companies and not other types of businesses.
False
Capital in the accounting equation represents the investment made by the business owners and any accumulated retained profits or losses.
True
The purpose of the accounting equation is to calculate the net income of a business.
False
The accounting equation is not relevant to the application of double entry bookkeeping in recording financial transactions.
False
The accounting equation can be expressed as Assets = Liabilities + Capital as well as Assets - Liabilities = Capital.
True
Test your understanding of the accounting equation and its application to various business transactions. Learn how assets, liabilities, and capital relate to each other in double entry bookkeeping.
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