Multiple Choice QuestionThe balance sheet equation is:Multiple choice question.total assets less total liabilities equal net worth.liabilities less assets equal net worth.liquid assets less long-term liabilities equal net worth.liquid assets less current liabilities equal net worth.
Question
Multiple Choice QuestionThe balance sheet equation is:Multiple choice question.total assets less total liabilities equal net worth.liabilities less assets equal net worth.liquid assets less long-term liabilities equal net worth.liquid assets less current liabilities equal net worth.
Solution
The correct answer is: "total assets less total liabilities equal net worth."
This is based on the fundamental accounting equation, which states that the total assets of a company are always equal to the sum of its liabilities and net worth (or equity). This equation must always balance, hence the term "balance sheet equation."
The other options are incorrect because they do not accurately represent the balance sheet equation. For example, "liabilities less assets equal net worth" is incorrect because it suggests that net worth is calculated by subtracting assets from liabilities, which is not the case. Similarly, the options involving "liquid assets" and "long-term liabilities" or "current liabilities" are incorrect because they refer to specific types of assets and liabilities, not the total amounts.
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