In a balance sheet, the statement that total assets equal total liabilities plus net assets is generally true. Which option reflects this statement?

• A. True
• B. False
• C. Only for non-profit organizations
• D. Not enough information

Answer: (A)

The main idea here is the basic accounting equation: assets must equal the sum of liabilities and net assets. This balance is the foundation of the balance sheet. In double-entry accounting, every transaction changes at least two accounts so that the total value of what the organization owns (assets) is financed either by what it owes (liabilities) or by the residual interest of its owners or donors (net assets in nonprofits; owners’ equity in for-profits).

This holds for all entities, not just nonprofits. For example, if a nonprofit borrows cash, assets rise and liabilities rise equally; if it receives a donation, assets rise and net assets rise correspondingly. Because of this, the total assets on the left always equal total liabilities plus net assets on the right.

Therefore, the statement is true. The other options conflict with the universal accounting rule or imply information is missing, which isn’t the case here.