18. What could an expanded version of the accounting equation be?
A. A + Rev = L + OE – Exp
B. A – L = Paid-in Capital – Rev – Exp
C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev – Exp
D. A = L + Paid-in Capital – Rev + Exp
C? I am lost with this question
Yes, you are correct. The expanded version of the accounting equation is option C: A = L + Paid-in Capital + Beginning Retained Earnings + Rev - Exp.
In this version, "A" represents assets, "L" represents liabilities, "Paid-in Capital" represents the amount of capital contributed by the owners, "Beginning Retained Earnings" represents the cumulative earnings retained by the company from previous periods, "Rev" represents revenues, and "Exp" represents expenses.
This expanded version takes into account the increase in assets through revenues and the decrease in assets through expenses, in addition to the liabilities and the contributions made by the owners.
To answer this question, we need to understand what the accounting equation represents and how it can be expanded.
The accounting equation represents the fundamental relationship in accounting between a company's assets (A), liabilities (L), and owner's equity (OE). The equation is typically written as:
A = L + OE
This equation shows that a company's assets are funded by its liabilities and owner's equity.
Now, let's consider the options provided:
A. A + Rev = L + OE – Exp
This option adds revenues (Rev) and subtracts expenses (Exp) from the accounting equation. While revenue and expenses are important components of a company's financial records, this equation does not reflect the basic structure of the accounting equation since it includes revenue and expenses directly.
B. A – L = Paid-in Capital – Rev – Exp
This option subtracts liabilities (L), revenue (Rev), and expenses (Exp) from the accounting equation. Again, this equation does not accurately represent the accounting equation since it deducts revenue and expenses directly.
C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev – Exp
This option represents the expanded version of the accounting equation. In addition to liabilities, it includes paid-in capital, beginning retained earnings, revenue, and expenses. This equation accurately reflects the fundamental equation since it shows that assets are funded by liabilities and various components of equity.
D. A = L + Paid-in Capital – Rev + Exp
This option deducts revenue (Rev) and adds expenses (Exp) from the accounting equation. Similar to the previous options, it does not reflect the basic structure of the accounting equation accurately.
Based on the explanation, the correct expanded version of the accounting equation is C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev – Exp.