Practice question · Multiple choice
A firm's books show assets 400, liabilities 250, equity 180. What do we know for certain?
Hints
- Compute and compare with 400.
- Is the equation a hypothesis or an identity?
Show the answer
D. There is a recording error
Why
. The equation is an identity, so a mismatch is always news about the bookkeeping, not the firm.
Practise The Accounting Equation
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