What is the correct accounting equation?

• A. Assets = Liabilities + Owners' Equity
• B. Assets + Liabilities = Owners' Equity
• C. Assets = Liabilities - Owners' Equity
• D. None of the above

Answer: (A)

The main idea is that what a business owns (assets) must be financed either by debts to others (liabilities) or by the owner's stake (owners’ equity). In double-entry accounting, every transaction affects at least two accounts so the assets always equal liabilities plus owners’ equity. This balance appears on the balance sheet and stays in balance after every operation.

Why this form fits: if the business borrows cash, assets go up and liabilities go up by the same amount. If the owner invests, assets rise and owners’ equity rises. Profits increase owners’ equity through retained earnings, again keeping assets equal to the sum of liabilities and owners’ equity.

Other expressions mix up the relationship: adding liabilities to assets doubles the financing sources, and subtracting owners’ equity from liabilities misrepresents how funding and resources align. So the correct form is assets equal to liabilities plus owners’ equity.