Which of the following equations is also correct regarding financial relationships?

Which of the following equations is also correct regarding financial relationships?

• A. Assets = Liabilities + Owner's Equity
• B. Liabilities - Assets = Owner's Equity
• C. Owner's Equity = Liabilities - Assets
• D. Equity = Assets + Liabilities

Answer: (A)

The equation that represents the fundamental accounting equation is Assets = Liabilities + Owner's Equity. This equation demonstrates the relationship between a company's resources (assets) and the claims against those resources (liabilities and equity). In this equation, assets represent everything a business owns that has economic value, while liabilities represent what the business owes to outside parties. Owner's equity, on the other hand, reflects the residual interest in the assets of the business after deducting liabilities. This relationship is foundational to double-entry bookkeeping and provides a clear picture of a company's financial stability. The other equations fail to accurately represent the fundamental relationships defined in accounting. For instance, subtracting liabilities from assets or rearranging these terms does not accurately reflect the financial structure and can lead to misunderstandings about a company's true financial position. Hence, the equation Assets = Liabilities + Owner's Equity is correct and essential for understanding financial reporting and analysis in business.

The equation that represents the fundamental accounting equation is Assets = Liabilities + Owner's Equity. This equation demonstrates the relationship between a company's resources (assets) and the claims against those resources (liabilities and equity).

In this equation, assets represent everything a business owns that has economic value, while liabilities represent what the business owes to outside parties. Owner's equity, on the other hand, reflects the residual interest in the assets of the business after deducting liabilities. This relationship is foundational to double-entry bookkeeping and provides a clear picture of a company's financial stability.

The other equations fail to accurately represent the fundamental relationships defined in accounting. For instance, subtracting liabilities from assets or rearranging these terms does not accurately reflect the financial structure and can lead to misunderstandings about a company's true financial position. Hence, the equation Assets = Liabilities + Owner's Equity is correct and essential for understanding financial reporting and analysis in business.