In accounting, which equation correctly expresses the balance sheet relationship?

• A. Assets = Liabilities + Owner's Equity
• B. Revenues - Expenses = Net Income
• C. Gross Profit = Revenue - Cost of Goods Sold
• D. Assets = Liabilities - Owner's Equity

Answer: (A)

The balance sheet is built on the idea that what a company owns is financed either by what it owes to others or by the owners’ claims. This is expressed as assets = liabilities + owner’s equity.

Why this fits: assets represent resources under the company’s control, while liabilities are debts to outside parties and owner’s equity is the owners’ residual claim on assets. Every transaction—borrowing cash, investing capital, or earning income that’s retained—changes both sides in the same amount, keeping the equation balanced.

The other expressions relate to different financial statements or are misformatted: net income comes from revenues minus expenses and is shown on the income statement, not the balance sheet; gross profit is also an income statement measure; subtracting owner’s equity from liabilities would misstate how financing works.