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What is the accounting equation that underlies the preparation of final accounts

Practice Questions

Q1
What is the accounting equation that underlies the preparation of final accounts?
  1. Assets = Liabilities + Equity
  2. Revenue = Expenses + Profit
  3. Assets + Liabilities = Equity
  4. Equity = Assets - Liabilities

Questions & Step-by-Step Solutions

What is the accounting equation that underlies the preparation of final accounts?
  • Step 1: Understand that the accounting equation is a fundamental principle in accounting.
  • Step 2: Identify the three main components of the equation: Assets, Liabilities, and Equity.
  • Step 3: Recognize that 'Assets' are what the company owns.
  • Step 4: Understand that 'Liabilities' are what the company owes to others.
  • Step 5: Know that 'Equity' represents the owner's interest in the company.
  • Step 6: Put it all together to see that the equation is: Assets = Liabilities + Equity.
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