Which equation correctly summarizes the accounting equation for a sole proprietorship?

Which equation correctly summarizes the accounting equation for a sole proprietorship?

• A. Assets = Liabilities + Owner's Equity
• B. Assets = Liabilities - Owner's Equity
• C. Assets + Liabilities = Owner's Equity
• D. Assets = Owner's Equity - Liabilities

Answer: (A)

Assets must be financed by either what the business owes to others (liabilities) or by the owner’s investment (owner’s equity). In a sole proprietorship, the owner’s claim on the business’s assets is captured as owner’s equity, so the total assets must equal the total of liabilities plus owner’s equity. This balance holds through every transaction: if you buy equipment with cash, assets shift within the asset side but the total remains the same; if you finance the purchase with a loan, liabilities rise in step with the asset. The other forms try to subtract or rearrange terms, which would not reflect how financing and ownership claims balance against assets.

Assets must be financed by either what the business owes to others (liabilities) or by the owner’s investment (owner’s equity). In a sole proprietorship, the owner’s claim on the business’s assets is captured as owner’s equity, so the total assets must equal the total of liabilities plus owner’s equity. This balance holds through every transaction: if you buy equipment with cash, assets shift within the asset side but the total remains the same; if you finance the purchase with a loan, liabilities rise in step with the asset. The other forms try to subtract or rearrange terms, which would not reflect how financing and ownership claims balance against assets.