The fundamental accounting equation states that:

The fundamental accounting equation is a foundational principle in accounting that establishes the relationship between a company's assets, liabilities, and shareholders' equity. It asserts that the total value of assets owned by a business must be exactly equal to the sum of its liabilities and shareholders' equity.

When we break it down, assets represent everything the business owns that has value, such as cash, inventory, buildings, and equipment. Liabilities are what the business owes to others, such as loans, accounts payable, and other debts. Shareholders' equity, also known as owner’s equity, reflects the residual interest in the assets of the entity after deducting liabilities—essentially, it's the net worth of the company from the shareholders' perspective.

This balance ensures that a company's financial position is accurately represented and that the accounting records adhere to the double-entry bookkeeping system, where every financial transaction impacts both sides of the equation equally. Since the equation shows that assets are funded either by borrowing (liabilities) or by the owners' investments (shareholders’ equity), it is a crucial concept for understanding a company's financial health.

Other options do not appropriately represent this balance and violate the principles of accounting. Therefore, the assertion that assets equal the sum of liabilities and shareholders'