The correct accounting equation formula is: A Assets = Liabilities Owner’s Equity B. Assets = Liabilities + Owner’s Equity C. Assets + Liabilities = Owner’s Equity D. Assets + Liabilities = Owner’s Equity

Net income or net earnings (often called “the bottom line”) is the excess of total revenues over total expenses. As a result, net income normally does not equal the net cash generated by operations. This latter amount is reported on the cash flow statement discussed later in this chapter.

Examples of the Accounting Equation

We end this paper with a glossary of http://www.derevodom.com/house-construction/show_2535.html terms and ratios for easy reference, and an appendix with complete financial statement exhibits on both ABC Corp. and XYZ Corp. It represents the owner’s claims to what would be leftover if the business sold all of its assets and paid off its debts. Your accounting records are vitally importantbecause the resulting financial statements and reports help you plan and make decisions. These statements and reports may be used by some third parties like bankers, investors or creditors, and are needed to provide information to government agencies, such as the IRS. It is important to pay close attention to the balance between liabilities and equity.