The fundamental accounting equation is which expression?

The fundamental accounting equation is which expression?

• A. Asset Turnover Ratio
• B. Assets = Liabilities + Owner's Equity
• C. Contract
• D. Principal

Answer: (B)

In double-entry bookkeeping, resources owned by a business (assets) come from two sources of financing: what the business owes to others (liabilities) and what the owners have invested or earned (owner’s equity). This relationship is written as Assets = Liabilities + Owner's Equity. It must always balance because every transaction changes both sides in a way that keeps the total resources financed by external debts and owner claims equal to the total assets. Owner’s equity includes contributed capital and retained earnings (in a corporation, it's called stockholders’ equity). The other terms listed aren’t the financing relationship: an Asset Turnover Ratio is a measure of performance, a Contract is a legal agreement, and Principal is the loan amount, not the accounting equation.

In double-entry bookkeeping, resources owned by a business (assets) come from two sources of financing: what the business owes to others (liabilities) and what the owners have invested or earned (owner’s equity). This relationship is written as Assets = Liabilities + Owner's Equity. It must always balance because every transaction changes both sides in a way that keeps the total resources financed by external debts and owner claims equal to the total assets. Owner’s equity includes contributed capital and retained earnings (in a corporation, it's called stockholders’ equity). The other terms listed aren’t the financing relationship: an Asset Turnover Ratio is a measure of performance, a Contract is a legal agreement, and Principal is the loan amount, not the accounting equation.