The correct answer is A. Assets = Liability + owner’s equity.
A balance sheet is a financial statement that reports a company’s assets, liabilities, and owner’s equity at a specific point in time. The equation Assets = Liability + owner’s equity is the fundamental accounting equation, and it must always be true.
Assets are the resources that a company owns. Liabilities are the debts that a company owes. Owner’s equity is the difference between a company’s assets and its liabilities. It represents the amount of money that the owners of the company would receive if the company were to be sold.
Option B is incorrect because the claim of outsiders against the business is the liability. Option C is incorrect because owner’s equity decreases by loss. Option D is incorrect because increase in asset does not always lead to increase in owner’s equity. For example, if a company buys a new asset with cash, its assets will increase but its owner’s equity will not change.