Which of the following best represents the fundamental accounting equation?

• A. Assets = Liabilities + Equity
• B. Liabilities = Assets + Equity
• C. Equity = Assets + Liabilities
• D. Assets = Revenues - Expenses

Answer: (A)

Verified step by step guidance

1. Understand the fundamental accounting equation, which is the foundation of financial accounting. It represents the relationship between a company's resources (assets), obligations (liabilities), and ownership interest (equity).
2. Recall that the fundamental accounting equation is expressed as: $A=L+E$, where $A$ stands for Assets, $L$ stands for Liabilities, and $E$ stands for Equity.
3. Analyze the options provided in the problem. The correct equation should align with the fundamental accounting equation: $A=L+E$. This equation ensures that the company's resources are balanced with its obligations and ownership interest.
4. Eliminate incorrect options by checking their alignment with the fundamental accounting equation. For example, 'Liabilities = Assets + Equity' and 'Equity = Assets + Liabilities' do not represent the correct relationship. Similarly, 'Assets = Revenues - Expenses' is related to the income statement, not the balance sheet equation.
5. Confirm that the correct answer is 'Assets = Liabilities + Equity,' as it accurately represents the fundamental accounting equation used in financial accounting.