CLFP Financial and Tax Accounting for Leases Practice Exam

In accounting, assets must be funded by liabilities and owners’ equity, so the balance sheet always balances. This is the accounting equation: Assets = Liabilities + Equity. Every asset is financed either by borrowing (liabilities) or by the owner's investment (equity), and double-entry bookkeeping ensures the total on both sides matches. Inflation doesn’t change this fundamental relationship—it only affects the measurement of amounts, not the equality. So the statement that total liabilities and equity equal assets is true.