Which of the following financial statements presents a business's accounting equation (\(\text{Assets} = \text{Liabilities} + \text{Equity}\))?

• A. Balance Sheet
• B. Statement of Cash Flows
• C. Income Statement
• D. Statement of Retained Earnings

Answer: (A)

Verified step by step guidance

1. Understand the accounting equation: The accounting equation is expressed as \( ext{Assets} = ext{Liabilities} + ext{Equity}\). It represents the fundamental relationship between a company's resources (assets), obligations (liabilities), and ownership interest (equity).
2. Identify the financial statement that directly reflects this equation: The Balance Sheet is the financial statement that provides a snapshot of a company's financial position at a specific point in time, showing its assets, liabilities, and equity.
3. Compare the other financial statements: The Statement of Cash Flows focuses on cash inflows and outflows, the Income Statement reports revenues and expenses to calculate net income, and the Statement of Retained Earnings explains changes in retained earnings over a period. None of these directly present the accounting equation.
4. Recognize the purpose of the Balance Sheet: The Balance Sheet is structured to align with the accounting equation, listing assets on one side and liabilities and equity on the other, ensuring the equation balances.
5. Conclude that the Balance Sheet is the correct answer: Based on the structure and purpose of the Balance Sheet, it is the financial statement that presents the accounting equation \( ext{Assets} = ext{Liabilities} + ext{Equity}\).