Which of the following statements is the rationale for the accounting equation?
A) A firm is worth its equity minus its assets.
B) Assets must equal earnings minus expenses.
C) What the firm owns minus what it owes creditors equals what it is worth to its owners.
D) The firm's profit is equal to its revenue minus its expenses.

Question

Quizplus · Accepted Answer

The accounting equation ensures that the firm's assets (what it owns) minus its liabilities (what it owes creditors) equals its equity (what it is worth to its owners). This reflects the fundamental principle of accounting that the value of the firm's assets must always equal the value of its liabilities and equity, providing a foundational framework for financial reporting and analysis. Choices A, B, and D are all incorrect as they do not provide the rationale for the accounting equation.

Which of the Following Statements Is the Rationale for the Accounting