Which expression represents the accounting equation?

Which expression represents the accounting equation?

• A. A=L+OE
• B. Revenue minus expenses equals net income
• C. Assets equal Liabilities plus Owner's Equity
• D. Cash flows from operating activities

Answer: (A)

The balance sheet identity is the idea that everything a business owns (assets) is financed either by what it owes (liabilities) or by the owner’s stake (owner’s equity). This is captured by the expression Assets = Liabilities + Owner's Equity. It shows how each transaction keeps the company’s books in balance: funds coming in to acquire assets must come from either borrowing (increasing liabilities) or from the owner's investment and retained earnings (increasing owner’s equity). For example, borrowing cash increases both assets and liabilities by the same amount, preserving the balance, while an owner’s contribution increases assets and owner’s equity accordingly. The other statements describe profitability (revenue minus expenses equals net income) and cash flows from operating activities, which relate to income and cash-flow statements, not the balance sheet balance.

The balance sheet identity is the idea that everything a business owns (assets) is financed either by what it owes (liabilities) or by the owner’s stake (owner’s equity). This is captured by the expression Assets = Liabilities + Owner's Equity. It shows how each transaction keeps the company’s books in balance: funds coming in to acquire assets must come from either borrowing (increasing liabilities) or from the owner's investment and retained earnings (increasing owner’s equity). For example, borrowing cash increases both assets and liabilities by the same amount, preserving the balance, while an owner’s contribution increases assets and owner’s equity accordingly.

The other statements describe profitability (revenue minus expenses equals net income) and cash flows from operating activities, which relate to income and cash-flow statements, not the balance sheet balance.