What is the formula for the balance sheet?

The balance sheet is a fundamental financial statement that reflects a company's financial position at a specific point in time. The correct formula is that assets equal liabilities plus owners' equity. This relationship illustrates the accounting equation, which is central to double-entry bookkeeping.

In this equation, assets represent what a company owns, including cash, inventory, property, and equipment. Liabilities are what the company owes to outsiders, such as loans and accounts payable. Owners' equity, also known as shareholders' equity, represents the residual interest in the assets of the company after deducting liabilities. It is essentially the net worth of the company from the owners' perspective.

This equation must always balance, meaning that the resources available to the company (assets) are financed either by borrowing (liabilities) or through the owners' own investment (owners' equity). Any changes made to assets must be balanced by changes in liabilities or equity, demonstrating a core principle of financial accounting.

The other choices do not reflect this fundamental principle. For example, cash and liabilities on their own do not sum up to provide a complete financial picture. Similarly, revenue minus expenses pertains more to the income statement than to the balance sheet, while equity minus liabilities does not provide a meaningful insight into the fundamental