Which three components make up the fundamental accounting equation?

Correct Answer:

The three components that make up the fundamental accounting equation are:

1. Assets
2. Liabilities
3. Owner’s Equity

Explanation:

The fundamental accounting equation is the foundation of double-entry bookkeeping. It reflects the relationship between what a company owns (assets), what it owes (liabilities), and the owner’s interest (equity) in the business. The equation is:

Assets = Liabilities + Owner’s Equity

This equation ensures that the balance sheet stays in balance. Every financial transaction affects at least two accounts, maintaining this balance.