Which of the following correctly states the balance sheet equation?

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BlackTom AI · Accepted Answer

The question asks: Which of the following correctly states the balance sheet equation?

First, note that the provided answer options are missing—there is no list of choices to evaluate. In such cases, we can still discuss the standard balance sheet equation and why it is correct given the context.

The balance sheet equation in double-entry accounting is: Assets = Liabilities + Equity. This expresses the core idea that what a company owns (assets) is funded either by what it owes to outsiders (liabilities) or by the owners’ claims (equity).;

If you imagine a simple scenario, suppose a company has 100 in assets. If it owes 40 in liabilities (debts to creditors) and 60 in equity (owners’ investment), the equation balances: 100 = 40 + 60. This equality must hold at all times for the financial statements to be consistent.

In general, the exact form Assets = Liabilities + Equity reflects three critical concepts: (1) resources controlled by the entity, (2) obligations to external parties, and (3) the residual interest of owners after accounting for liabilities. This framing ensures the accounting equation stays balanced regardless of the specific transactions, because every increase in assets must be paired with a corresponding increase in liabilities or equity, and vice versa.

Because the provided answer field includes the standard equation, the correct conceptual statement aligns with the fundamental principle of double-entry bookkeeping, whereas any alternative phrasing would typically misstate one side of the equation or omit one of the components (assets, liabilities, or equity).

MSB-250-300-002 Proctored Final Exam

Which of the following correctly states the balance sheet equation?

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