What is the equation that represents the accounting equation?

The correct representation of the accounting equation is that assets equal liabilities plus equity. This fundamental equation illustrates the relationship between a company's assets, the obligations it owes (liabilities), and the ownership interest represented by equity.

In practical terms, this equation reflects how the resources owned by a business (assets) are funded either through borrowing (liabilities) or through investments made by the owners (equity). This balance must always hold true because every asset in a business is financed either by taking on debt or through the investment of owners.

This framework is critical within the double-entry bookkeeping system, where every financial transaction affects at least two accounts and maintains the integrity of the equation. Understanding this relationship helps in analyzing a company's financial health and ensuring that the balance sheet remains balanced.