Which statement below best describes the accounting equation?

Question

Quizplus · Accepted Answer

The accounting equation states that Assets = Liabilities + Equity, which means that the resources of the company (assets) must equal the creditors' and owners' claims to those resources (liabilities and equity). This is the best description of the accounting equation among the given choices. Option A describes the relationship between retained earnings, net income, and dividends, which is only one part of the accounting equation. Option B refers to the concept of accrual accounting, which does not fully explain the accounting equation. Option D wrongly equates financing activities with investing and operating activities, which are different types of transactions.

Which Statement Below Best Describes the Accounting Equation