Blue Company reported this information for year 3: sales revenue of $11,500; cost of goods sold expense of $8,000; bad debt expense of $8,000; bad debt expense of $100.


Screenshot 2024 01 10 212635

Screenshot 2024 01 10 212635

Step 1 of 2

In this question, the correct option is to be chosen from the given option.

The balance between an organization’s resources and its liabilities is represented by this equation. It is the cornerstone of accounting and provides the framework for preserving a company’s financial equilibrium. This formula must be followed for every transaction that has an impact on a company’s financial position in order to guarantee accurate and consistent accounting records.

Explanation:

The dual nature of accounting entries is reflected in this equation, where each transaction impacts both sides in order to keep the balance. The balance sheet is a type of financial statement that gives an overview of the state of a business’s finances at a particular point in time.

 

Step 2 of 2

This accounting equation is a representation of the basic accounting principle. It stipulates that the total assets of a business must match the total of its liabilities and owners’ equity.

1) Total Assets (A) : These are the financial resources that a company possesses or manages. Cash, receivables from customers, inventory, real estate, machinery, and other items are examples of assets.

2) Total Liabilities (L) : These represent the debts or commitments a business has to third parties. Loans, accounts payable, and other monetary commitments are examples of liabilities.

3) Total Owners’ Equity (OE) : Following the deduction of liabilities from assets, this figure indicates the owners’ remaining stake in the company. It consists of the owners’ original investment plus any retained earnings, or profits that aren’t paid out as dividends.

So the correct answer is A

Total Assets=Total Liabilities+Total Owners’ Equity.

Explanation:

The equation says that the total of the company’s assets is equal to the total of its liabilities and equity, which also includes the total of the owners’ holdings. This guarantees the constant balance of the accounting records. In conclusion, this accounting equation, which gives a quick overview of a company’s financial situation at any given time, is an essential tool for guaranteeing the consistency and accuracy of financial records.

 

Final solution

So the correct answer is A

Total Assets=Total Liabilities+Total Owners’ Equity.

 

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