What equation represents the relationship between a business's assets, liabilities, and net worth?

The relationship between a business's assets, liabilities, and net worth is best represented by the Accounting Equation. This equation states that the total assets of a company are equal to the total liabilities plus the net worth (or equity). In mathematical terms, this can be expressed as:

Assets = Liabilities + Net Worth (or Equity)

This fundamental equation reflects the idea that everything a company owns (assets) is financed either by borrowing (liabilities) or by the owners' investment (net worth). Understanding this equation is crucial because it forms the basis of accounting and financial reporting, ensuring that the company’s books are balanced, and it provides a clear picture of the financial health of the business.

In contrast, the Balance Sheet Equation is often used interchangeably with the Accounting Equation, but it is specifically a format for presenting the data of the Accounting Equation. The Profit Equation relates to income and expenses, focusing on profitability rather than the overall financial position. Lastly, the Capital Structure Equation pertains to the specific composition of a company's long-term funding sources, not the fundamental relationships among assets, liabilities, and equity. Thus, the Accounting Equation is the most appropriate choice to depict the described relationship.