Which equation represents the fundamental accounting equation correctly?

The fundamental accounting equation describes the relationship between a company's assets, liabilities, and owner's equity. This equation is foundational in understanding how financial transactions affect a company's financial position.

The correct expression of the fundamental accounting equation is that assets are equal to the sum of liabilities and owner's equity. This means that everything the company owns (its assets) must be balanced by what it owes (its liabilities) and the residual interest of the owners in the assets after all liabilities have been deducted (owner's equity).

In practical terms, this equation ensures that a company's balance sheet remains balanced, reflecting that all the resources owned by the company are financed either through borrowing (liabilities) or by the owners' investments (owner's equity). It highlights that for every financial transaction, the total amount of assets will always equal the total amount of financing provided by creditors and investors. This balance is crucial for maintaining accuracy in financial reporting and assessments.

Understanding this concept is vital for anyone involved in accounting or financial analysis, as it forms the basis for double-entry bookkeeping and overall financial health assessment of a business.