Which equation is fundamental in accounting to ensure balance?

The equation that is fundamental in accounting to ensure balance reflects the core principle of the accounting equation, which is that a company's resources (assets) are financed by obligations (liabilities) and the owners' interest (shareholders' equity). Specifically, the correct formulation states that assets are equal to the sum of liabilities and shareholders' equity. This relationship is essential because it maintains the balance within the accounting system, where every financial transaction has dual effects.

When a company acquires assets, it either incurs liabilities by borrowing money or it raises capital through equity from shareholders. This equation highlights that, to maintain financial stability and integrity, any acquisition of assets must be matched by an equal increase in liabilities or equity, ensuring that the company's books are always balanced.

The misinterpretation of the other formulations reveals a misunderstanding of the fundamental relationship: assets cannot simply equal liabilities plus revenue, as revenue pertains to income generation and not to the financing of assets. Similarly, the equation involving assets and liabilities equating to shareholders' equity does not conform to accepted accounting principles.