What equation describes a balance sheet relationship?

The equation that describes a balance sheet relationship is Assets = Liabilities + Equity. This fundamental accounting equation portrays the financial position of a company at a specific point in time. It asserts that everything a company owns (assets) is financed either by borrowing money (liabilities) or by the shareholders’ own funds (equity).

On a balance sheet, assets include resources such as cash, inventory, property, and equipment. Liabilities represent the debts and obligations the company owes to external parties. Equity reflects the value that is attributable to the owners of the company after liabilities are deducted from assets.

This equation ensures that the balance sheet is always balanced, meaning that the value of what the company owns is always equal to the value of what it owes plus the owner's claim on those assets. Thus, this relationship is essential for understanding a company's financial integrity and stability.