Which statement is true for a balance sheet?

Which statement is true for a balance sheet?

• A. total assets = total liabilities + equity
• B. total assets = total liabilities + revenue
• C. total assets = total equity
• D. total assets = total liabilities - equity

Answer: (A)

The balance sheet is guided by the fundamental accounting equation: what the company owns (assets) is financed by what it owes (liabilities) and what the owners have invested or earned (equity). Because of this, total assets must always equal the sum of total liabilities and total equity. Revenue belongs on the income statement and, when earned, increases equity through retained earnings, but it is not a separate funding source on the balance sheet. That’s why it doesn’t appear in the asset equation. The other options would imply that assets equal liabilities plus revenue, or assets equal equity alone, or that assets equal liabilities minus equity—none of which reflect the actual funding structure.

The balance sheet is guided by the fundamental accounting equation: what the company owns (assets) is financed by what it owes (liabilities) and what the owners have invested or earned (equity). Because of this, total assets must always equal the sum of total liabilities and total equity.

Revenue belongs on the income statement and, when earned, increases equity through retained earnings, but it is not a separate funding source on the balance sheet. That’s why it doesn’t appear in the asset equation. The other options would imply that assets equal liabilities plus revenue, or assets equal equity alone, or that assets equal liabilities minus equity—none of which reflect the actual funding structure.