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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Parish Tutoring Services has assets of $25,000 and liabilities of $10,000. What is the amount of owner’s equity?

  1. a. $35,000
  2. b. $15,000
  3. c. $12,500
  4. d. $10,000

To determine

Find the correct option, the option which indicates the correct amount of owners’ equity of PT Services.

Explanation

Accounting equation: Accounting equation is a concept expressed in the form of equation, which creates a relation between resources or assets of a company and claims of resources to creditors and owners. Fundamental accounting equation is expressed as shown below:

Assets = Liabilities + Owners' Equity

Components of accounting equation:

  • Assets: These are the resources owned and controlled by business and used to produce benefits for the company. Assets are classified on the balance sheet as current assets, non-current assets, property, plant, and equipment, and intangible assets.
  • Liabilities: The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors and suppliers. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.
  • Owners’ equity: The financial interest of the owners to invest in the business is referred to as owners’ equity or capital

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