Which equation represents the fundamental accounting equation?

The fundamental accounting equation is a foundational principle of accounting that illustrates the relationship between a company's assets, liabilities, and equity. It states that the total assets owned by a business are financed either by borrowing money (liabilities) or by the owners' contributions (equity).

The equation presented in the correct answer establishes that assets equal the sum of liabilities and equity. This reflects the idea that all resources (assets) of a business must be funded either through debts (liabilities) or through the investment by the owners (equity). For example, if a company has total assets of $100,000, and it has $40,000 in liabilities, it must have $60,000 in equity. This relationship helps ensure that the accounting records are balanced and provides insight into the financial health of the business.

Understanding this equation is essential for anyone studying accounting, as it serves as the basis for double-entry bookkeeping and informs how financial statements are constructed and interpreted. By mastering this concept, students can better grasp how businesses manage their financial resources and the implications of their financial decisions.