The accounting equation is a fundamental principle in accounting, representing the relationship between the assets, liabilities, and owners' equity of an organization. It states that:
[tex]\[ \text{Assets} = \text{Liabilities} + \text{Owners' Equity} \][/tex]
Here's a step-by-step explanation:
1. Assets: These are resources owned by a business that have economic value and can provide future benefits. Examples include cash, inventory, property, and equipment.
2. Liabilities: These are obligations the business owes to others, such as loans, accounts payable, and mortgages.
3. Owners' Equity: This represents the owner's claim on the assets of the business after all liabilities have been deducted. It can also be thought of as the residual interest in the assets of the entity after deducting liabilities. It includes items like common stock, retained earnings, and additional paid-in capital.
To understand how these components relate, the equation can be rephrased in the context of a balance sheet. A balance sheet lists a company's assets on one side and its liabilities and owners' equity on the other, ensuring both sides balance (i.e., are equal).
For example:
- If a company has [tex]$100,000 in assets, that amount must be financed by either liabilities (debts) or owners' equity (capital or retained earnings). If there are $[/tex]60,000 in liabilities, then owners' equity must be [tex]$40,000 to balance the equation:
\[ \text{$[/tex]100,000} = \text{[tex]$60,000} + \text{$[/tex]40,000} \]
Given the equation’s significance and standard presentation in accounting principles, the statement that "The usual expression of the accounting equation is Assets = Liabilities + Owners' Equity" is indeed correct.
Therefore, the answer to the question is:
(A) True
