Adjusting Entries

question 86

Multiple Choice

Adjusting entries:

• A) Affect only income statement accounts.
• B) Affect only balance sheet accounts.
• C) Affect both income statement and balance sheet accounts.
• D) Affect only cash flow statement accounts.
• E) Affect only equity accounts.

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Definitions:

Hybrid Security

A financial instrument that combines characteristics of both equity and debt, often providing fixed income or dividends as well as the potential for capital appreciation.

Equity

An ownership interest. The portion of a firm’s capital representing funds belonging to its shareholders. An equity investment is an investment in stock.

Capital Components

The various sources of funding that a company uses to finance its operations and growth, including debt and equity.

Capital Structure

The mix of the three capital components (debt, preferred stock, and equity) used by a firm. The optimal capital structure is the structure at which stock price is maximized, all other things held equal. Also see Target capital structure.