The correct answer is: B. Assets = liability + owner’s equity
The accounting equation is a basic formula that describes the relationship between assets, liabilities, and owner’s equity. It states that assets equal liabilities plus owner’s equity.
Assets are the resources that a company owns. They can be tangible, such as cash, equipment, or inventory, or intangible, such as patents or trademarks.
Liabilities are the debts that a company owes. They can be short-term, such as accounts payable, or long-term, such as bonds.
Owner’s equity is the difference between assets and liabilities. It represents the amount of money that the owners have invested in the company.
The accounting equation can be used to track the financial performance of a company. It can also be used to calculate important financial ratios, such as the debt-to-equity ratio and the return on equity.
Here is a brief explanation of each option:
- Option A: Assets = owners equity. This is not a correct accounting equation. Assets are not equal to owner’s equity. In fact, assets can be greater than, less than, or equal to owner’s equity.
- Option B: Assets = liability + owner’s equity. This is the correct accounting equation. It states that assets equal liabilities plus owner’s equity.
- Option C: Assets = liability – owner’s equity. This is not a correct accounting equation. Assets cannot be equal to liabilities minus owner’s equity.
- Option D: Assets = liability = owner’s equity. This is not a correct accounting equation. Assets cannot be equal to liabilities equal to owner’s equity.