Which formula represents the basic accounting equation?

The basic accounting equation is fundamental in the field of accounting and finance, outlining the relationship between a company’s assets, liabilities, and owner’s equity. The formula that most accurately represents this relationship is Assets = Liabilities + Owner's Equity.

In this equation, assets represent what a company owns, liabilities denote what the company owes to others, and owner’s equity reflects the residual interest in the assets of the entity after deducting liabilities. This equation ensures that the company’s resources (assets) are financed either by borrowing money (liabilities) or by the owner’s own investments in the business (equity).

This structure is crucial for maintaining the integrity of financial statements and ensuring that they are balanced, whereby the total value of assets must always equal the combined total of liabilities and equity. It serves as the foundation for double-entry bookkeeping, where every entry into the accounting system must keep this equation in balance, reflecting the concept that every financial transaction affects at least two accounts.

In contrast, the other options do not accurately depict this fundamental relationship. For instance, mixing revenues into an equation that primarily addresses the structure of financial positions (such as in the first choice) deviates from the core of what the accounting equation represents. The second option presents an