BALANCE SHEET EQUATIONS
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for accounting in depth — Bank Promotions.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the fundamental balance sheet equation?
Assets = Liabilities + Owner's Equity. This equation must always remain in balance after every transaction.
What does 'Assets = Liabilities + Capital' represent in accounting?
The fundamental balance sheet equation in double-entry system.
How does the extended accounting equation differ from the basic equation?
The extended equation is Assets = Liabilities + Capital + Revenue - Expenses - Drawings, incorporating income statement elements into the equity component.
What is the accounting equation when a new business is started with cash capital?
Assets (cash) equal Capital with zero liabilities initially.
What happens to the balance sheet equation when a business takes a bank loan?
Both assets (cash/bank) and liabilities (loan payable) increase by the same amount, keeping the equation in balance.
How does credit purchase of goods affect the balance sheet equation?
Assets and liabilities both increase by the same amount.
How does the payment of a creditor affect the balance sheet equation?
Both assets (cash) and liabilities (creditor) decrease by the same amount, maintaining the equation's balance without affecting equity.
What happens to the balance sheet equation when cash sales are made?
Cash asset increases while inventory asset decreases by cost.
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