What is the accounting equation represented in the balance sheet?

The accounting equation represented in the balance sheet is Assets = Liabilities + Equity. This fundamental equation illustrates the relationship between a company's resources and how those resources are financed. In essence, it shows that all the assets a company owns (what it is worth) are financed either by borrowing money (liabilities) or by using the owners' funds (equity).

This equation must always balance, meaning the total value of a company's assets must equal the total value of its liabilities and equity at any given time, which is the crux of double-entry bookkeeping. The principle ensures that every financial transaction affects at least two accounts, maintaining the balance in the equation.

Understanding this relationship is crucial for analyzing a company's financial health, as it provides insights into how well the business is managing its obligations and capital structure. The other options do not correctly reflect the core relationship defined by the balance sheet and do not fulfill the fundamental understanding required for financial statement analysis.