Question

Which of the following statements best represents the reason for the accounting equation?

Answer 1

Answer:

c. The total of everything owned by a business must always equal the total of what the business owes to creditors and owners.

Explanation:

In every balance sheet, the accounting equation has used that means

Total assets = Total liabilities + Shareholder equity

The statement of stockholder's equity comprises common stock and retained earnings. And, the balance sheet comprises of the assets and liabilities.

The total assets comprises of current assets, fixed assets and the intangible assets

The current assets includes cash, stock, account receivable, etc

Fixed assets include plant & machinery, land, equipment, furniture & fittings, etc.

And, the intangible assets include patents, copyrights, goodwill, etc.

And, the total liabilities include current liabilities and the long term liabilities

With the help of the accounting equation, the total assets are equal to the total liabilities including stockholder's equity.

Hence, the most appropriate option is c.