The term balance sheet is used because the following accounting identity must always hold ________.
A)Assets ≡ Liabilities - Owners' Equity
B)Assets ≡ Liabilities + Owners' Equity
C)Liabilities ≡ Assets + Owners' Equity
D)Owners' Equity ≡ Liabilities + Assets

Question

Quizplus · Accepted Answer

The accounting identity that must always hold is Assets ≡ Liabilities + Owners' Equity. This is known as the balance sheet equation, and it is the foundation of double-entry accounting. Assets must always equal the sum of liabilities and owners' equity because every transaction has two sides: a debit and a credit. When a company buys an asset, it is either paying for it with cash (which decreases assets and increases liabilities or owners' equity) or taking out a loan (which increases both assets and liabilities). By maintaining the balance sheet equation, companies can ensure that their financial records are accurate and complete.

The Term Balance Sheet Is Used Because the Following Accounting