How is the basic equation of accounting expressed?

How is the basic equation of accounting expressed?

• A. Assets + Liabilities = Capital
• B. Assets - Liabilities = Total Value of Ownership
• C. Assets / Liabilities = Equity
• D. Assets = Liabilities + Capital

Answer: (D)

The basic equation of accounting, often referred to as the accounting equation, is expressed as Assets = Liabilities + Equity (or Capital). This equation represents the fundamental relationship between a company's resources and the claims against those resources. In this equation, assets are what the business owns (such as cash, inventory, and real estate), liabilities are what the business owes to others (such as loans and accounts payable), and equity, or capital, represents the owner's interest in the business after subtracting liabilities from assets. This principle ensures that the company's balance sheet remains balanced, reflecting that all resources (assets) are funded either through borrowing (liabilities) or the owner's investment (equity). Therefore, this fundamental relationship is crucial for understanding financial statements and the overall financial health of a business.

The basic equation of accounting, often referred to as the accounting equation, is expressed as Assets = Liabilities + Equity (or Capital). This equation represents the fundamental relationship between a company's resources and the claims against those resources.

In this equation, assets are what the business owns (such as cash, inventory, and real estate), liabilities are what the business owes to others (such as loans and accounts payable), and equity, or capital, represents the owner's interest in the business after subtracting liabilities from assets.

This principle ensures that the company's balance sheet remains balanced, reflecting that all resources (assets) are funded either through borrowing (liabilities) or the owner's investment (equity). Therefore, this fundamental relationship is crucial for understanding financial statements and the overall financial health of a business.