What is the equation for assets?

What is the equation for assets?

• A. Assets = Liabilities + Owner's Equity
• B. Assets = Revenue - Expenses
• C. Assets = Liabilities - Equity
• D. Assets = Income + Liabilities

Answer: (A)

Assets are the resources a business owns. The balance in the books must reflect that what the business owns is financed either by what it owes to others (liabilities) or by the owners’ claim on the business (owner’s equity). That relationship is exactly captured by assets equaling liabilities plus owner’s equity. For example, if liabilities are 40,000 and owner’s equity is 60,000, assets must be 100,000 to balance. Other options mix in income or misstate the relationship. Revenue minus expenses measures profit, not the asset total. Liabilities minus equity doesn’t reflect how assets are funded. Income plus liabilities also misclassifies sources of funds and isn’t the correct balance.

Assets are the resources a business owns. The balance in the books must reflect that what the business owns is financed either by what it owes to others (liabilities) or by the owners’ claim on the business (owner’s equity). That relationship is exactly captured by assets equaling liabilities plus owner’s equity. For example, if liabilities are 40,000 and owner’s equity is 60,000, assets must be 100,000 to balance.

Other options mix in income or misstate the relationship. Revenue minus expenses measures profit, not the asset total. Liabilities minus equity doesn’t reflect how assets are funded. Income plus liabilities also misclassifies sources of funds and isn’t the correct balance.