Assets should always equal Liabilities on a balance sheet.

Assets should always equal Liabilities on a balance sheet.

• A. True
• B. False
• C. They should equal Revenue
• D. They should equal Expenses

Answer: (A)

Assets must be financed by claims against the business and by the owners’ stake, so they balance with liabilities plus owner’s equity. The fundamental equation is that assets = liabilities + owner’s equity. This means every resource the business owns (assets) has a source of funding—either a debt owed to others (liabilities) or funds invested and retained by the owners (owner’s equity). For example, if a company buys equipment worth 50,000 with 20,000 funded by a loan (liability) and 30,000 funded by the owners’ investment (owner’s equity), everything still balances: assets total 50,000, liabilities total 20,000, and owner’s equity total 30,000. Revenue and expenses belong to the income statement and affect owner’s equity over time, not the asset total directly. Revenue increases equity through profit, while expenses decrease it; they don’t set the asset total on the balance sheet. So assets should not equal liabilities alone; they equal liabilities plus owner’s equity.

Assets must be financed by claims against the business and by the owners’ stake, so they balance with liabilities plus owner’s equity. The fundamental equation is that assets = liabilities + owner’s equity. This means every resource the business owns (assets) has a source of funding—either a debt owed to others (liabilities) or funds invested and retained by the owners (owner’s equity).

For example, if a company buys equipment worth 50,000 with 20,000 funded by a loan (liability) and 30,000 funded by the owners’ investment (owner’s equity), everything still balances: assets total 50,000, liabilities total 20,000, and owner’s equity total 30,000.

Revenue and expenses belong to the income statement and affect owner’s equity over time, not the asset total directly. Revenue increases equity through profit, while expenses decrease it; they don’t set the asset total on the balance sheet.

So assets should not equal liabilities alone; they equal liabilities plus owner’s equity.