What formula represents the accounting equation?

The accounting equation is fundamental to financial accounting and represents the relationship between a company’s assets, liabilities, and equity. The correct formula, which states that assets equal liabilities plus equity, reflects the principle that everything a business owns (its assets) is financed either through borrowing (liabilities) or by the owners' investments (equity).

This equation ensures that the balance sheet is balanced, where total resources (assets) are always funded by claims against those resources (liabilities and equity). For instance, if a company has $100,000 in assets, the formula dictates that this amount must be equal to the total of its liabilities and equity. If the liabilities amount to $60,000, then equity must be $40,000 to satisfy the equation.

In contrast, the other options fail to accurately reflect the standard accounting equation. They either rearrange the components incorrectly or misstate the relationships between assets, liabilities, and equity. Understanding this equation is crucial for analyzing a company's financial position, making it foundational knowledge for anyone studying financial accounting.