What is the basic accounting equation on a balance sheet?

What is the basic accounting equation on a balance sheet?

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

Answer: (A)

The basic idea is that what a business owns (assets) is funded by what it owes (liabilities) and by the owner’s claim (owner’s equity). On the balance sheet, assets must equal liabilities plus owner’s equity because every asset is financed either by borrowing or by the owner's investment. This reflects double-entry bookkeeping: each asset has a source in either a liability or in equity. The other statements mix elements incorrectly—for example, adding assets to liabilities or subtracting equity from liabilities misstates the funding, and equating income with expenses plus owner’s equity brings in the income statement rather than the balance sheet. So the correct form is assets = liabilities + owner’s equity.

The basic idea is that what a business owns (assets) is funded by what it owes (liabilities) and by the owner’s claim (owner’s equity). On the balance sheet, assets must equal liabilities plus owner’s equity because every asset is financed either by borrowing or by the owner's investment. This reflects double-entry bookkeeping: each asset has a source in either a liability or in equity. The other statements mix elements incorrectly—for example, adding assets to liabilities or subtracting equity from liabilities misstates the funding, and equating income with expenses plus owner’s equity brings in the income statement rather than the balance sheet. So the correct form is assets = liabilities + owner’s equity.