Which equation accurately represents the fundamental accounting equation?

The fundamental accounting equation is expressed as Assets equal Liabilities plus Owners' Equity. This equation is the foundation of double-entry accounting and reflects the relationship between what a business owns (assets) and the claims against those assets, which consist of what is owed to creditors (liabilities) and what is owed to the owners (owners' equity).

Understanding this equation is crucial for maintaining accurate financial records, as it ensures that the balance sheet remains balanced. Each transaction affects at least two accounts, and this equation helps in tracking how these changes impact the total assets, liabilities, and owners' equity. For instance, if a company takes a loan, its liabilities increase, and, correspondingly, its cash (an asset) increases, keeping the equation in balance.

The incorrect choices reflect misunderstandings about the relationships between these elements. Specifically, one suggests that assets are negative when deducted by owners' equity, which misrepresents the concept, while another incorrectly positions liabilities as the primary element without recognizing their offset with owners' equity. Thus, option C accurately encapsulates the essence of the accounting equation, showcasing that all assets of a company are funded by either borrowing money or through the owners' investment.