The balance sheet follows the accounting equation, which states that total assets must equal total liabilities plus equity. In other words, everything that the company owns (assets) must be financed by either borrowing (liabilities) or the owner's investment (equity). This ensures that the balance sheet is always in balance.

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On a Balance Sheet

Question 242

Multiple Choice

On a balance sheet,

A) total assets must equal total liabilities plus equity.
B) total assets plus equity must equal total liabilities.
C) total assets plus total liabilities must equal zero.
D) total assets plus total liabilities plus equity must equal zero.

Correct Answer: