Which equation represents the fundamental relationship in accounting?

The fundamental relationship in accounting is represented by the equation that asserts that total assets of a company are always equal to the sum of its liabilities and owners' equity. This principle is foundational to double-entry bookkeeping and illustrates the balance sheet equation.

When a business acquires assets, those assets can either be financed through liabilities (such as loans) or through equity (the money invested by the owners). Therefore, whether a company has assets from borrowed funds or from owner investments, the equation holds true. This balance ensures that the accounting equation remains balanced, reflecting a true and fair view of the company’s financial position.

The other equations mentioned do not accurately reflect this fundamental relationship. For instance, equating assets with liabilities and revenue misses the element of equity, while rearranging the equation to focus solely on liabilities doesn't provide a complete perspective on how assets and equity intertwine with the company’s financial structure.