Virginia Contractor General Practice Test 2025 - Free Contractor Practice Questions and Study Guide

In a balance sheet, assets are defined through the fundamental accounting equation, which states that assets equal liabilities plus owner's equity. This relationship reflects the source of the company's assets: they are either financed by borrowing (liabilities) or are owned outright by the shareholders (owner's equity).

When considering the structure of a balance sheet, it is essential to recognize that assets represent everything the company owns and can use to generate revenue. This means that the equation can be rearranged to express assets in terms of liabilities and owner's equity: Assets = Liabilities + Owner's Equity. Therefore, stating that assets equal the sum of liabilities and owner's equity correctly encapsulates the financial position and capital structure of a business, confirming that both finances provided by creditors and funds from the owner's investment make up the total assets of the company.

The other choices do not accurately represent the definition of assets in the context of the balance sheet, focusing instead on either subtracting components or misrepresenting the relationships among the financial elements involved.