Which of the following statements correctly represents the fundamental accounting equation?

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

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the fundamental accounting equation, which is the foundation of financial accounting. It states that Assets = Liabilities + Equity. This equation ensures that a company's financial position is balanced.
2. Step 2: Analyze the options provided in the problem. The correct representation of the fundamental accounting equation is 'Assets = Liabilities + Equity'. This equation reflects the relationship between what a company owns (assets), owes (liabilities), and the owner's residual interest (equity).
3. Step 3: Eliminate incorrect options by comparing them to the fundamental accounting equation. For example, 'Liabilities = Assets + Equity' is incorrect because liabilities are not the sum of assets and equity. Similarly, 'Assets = Revenues - Expenses' is incorrect because revenues and expenses are part of the income statement, not the balance sheet.
4. Step 4: Confirm that 'Equity = Assets + Liabilities' is also incorrect because equity is calculated as the residual interest after subtracting liabilities from assets, not the sum of assets and liabilities.
5. Step 5: Conclude that the correct representation of the fundamental accounting equation is 'Assets = Liabilities + Equity', which aligns with the principles of double-entry accounting and ensures the balance sheet remains balanced.