Concept:The basic accounting equation is the foundation of the double-entry system. It shows that every asset owned by a business is financed by either external liabilities or the owner’s capital.
Explanation:The standard form of the basic accounting equation is:
Assets=Liabilities+Owner’s EquityThis means the total resources of a business are always equal to the total claims against those resources.
When both sides have liabilities subtracted, the equation is rearranged as:
Assets−Liabilities=Owner’s EquityThis rearranged form matches Option A exactly.
Owner's equity is therefore the residual claim left for the owner after all debts have been settled.
Option C is incorrect because adding assets to liabilities can never equal only the owner's equity; the owner cannot claim more than the business actually owns.
Option B represents the expanded accounting equation, which includes revenue and expenses, not the basic equation.
Option D is simply the profit formula and does not express the accounting equation.
Thus, for the books to balance, what the business owns must always equal what it owes plus the owner's interest.
Answer:The correct answer is A:
Assets−Liabilities=Owner’s Equity