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Question

Which financial statement represents the accounting equation, $$Assets = Liabilities + Owner's\ equity$$.


A
P/L A/c
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B
Statement of Cash flows
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C
Balance sheet
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D
None of these
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Solution

The correct option is C Balance sheet
As per dual concept of accounting every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction. The equation states that the assets of a business are always equal to the claims of owners and the outsiders. The claims also called equity of owners is termed as Capital (owners’ equity) and that of outsiders, as Liabilities (creditor’s equity). The two-fold effect of each transaction affects in such a manner that the equality of both sides of equation is maintained in balance sheet.

Principles and Practice of Accounting

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