Which of the following is correct?
Last updated Jun 23, 2026
Correct Answer:
Option C —
asset liability + equity
The Accounting EquationThis is the most fundamental formula in accounting. it states that everything a company owns (Assets) must be paid for by either borrowing money (Liabilities) or by using the owner's own money (Equity).
Assets: Resources owned by the business (Cash, Inventory, Buildings).
Liabilities: Obligations or debts owed to outsiders (Bank loans, Unpaid bills to suppliers).
Equity: The owner’s "residual" claim on the assets after all liabilities are paid (Capital, Retained earnings).
Mathematical Variations:
Assets - Liabilities = Equity (How much the owner actually "owns" free and clear).
Assets - Equity = Liabilities (How much of the assets are financed by debt).
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.
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