What is represented by the expanded accounting equation?

The expanded accounting equation provides a more comprehensive view of a company's financial position. It is typically expressed as Assets = Liabilities + Equity, where Equity can be broken down further into its components, including revenues and expenses. This equation illustrates the relationship between a business's assets, liabilities, and the equity, which is affected by profits or losses generated from operations.

The correct choice effectively reflects the underlying components of equity, indicating that equity consists of revenues and expenses along with any liabilities. Therefore, it shows how the total assets of a business are financed through liabilities and the owner’s equity, which is derived from the net effect of revenues and expenses.

This representation is essential in understanding the financial dynamics of a business, as it encapsulates how revenue generation and cost management influence overall equity, and thus the company’s financial health. By breaking down equity into revenues and expenses, it highlights the flow of money within the business, making it clear how operational activities impact the financial structure.