Which of the following correctly shows the basic format of a balance sheet?

• A. Revenues - Expenses = Net Income
• B. Assets = Liabilities + Equity
• C. Cash Flows from Operating + Investing + Financing Activities = Net Income
• D. Assets + Liabilities = Equity

Answer: (B)

Verified step by step guidance

1. Understand the purpose of a balance sheet: A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It shows what the company owns (assets), what it owes (liabilities), and the residual interest of the owners (equity).
2. Recall the accounting equation: The basic format of a balance sheet is based on the fundamental accounting equation, which is \( \text{Assets} = \text{Liabilities} + \text{Equity} \). This equation ensures that the balance sheet is balanced, meaning the total assets are equal to the sum of liabilities and equity.
3. Analyze the options provided: Compare each option to the accounting equation. The correct format must align with \( \text{Assets} = \text{Liabilities} + \text{Equity} \).
4. Eliminate incorrect options: For example, 'Revenues - Expenses = Net Income' is the format for the income statement, not the balance sheet. Similarly, 'Cash Flows from Operating + Investing + Financing Activities = Net Income' pertains to the statement of cash flows, not the balance sheet. Lastly, 'Assets + Liabilities = Equity' is incorrect because it does not follow the accounting equation.
5. Select the correct answer: The correct format of the balance sheet is \( \text{Assets} = \text{Liabilities} + \text{Equity} \), as it accurately represents the accounting equation and the structure of the balance sheet.