Investment Banking Technical Interview 2025 – 400 Free Practice Questions to Pass the Exam

The equation that represents the Balance Sheet is fundamentally structured as Assets equal Liabilities plus Shareholder's Equity. This principle is foundational to accounting and reflects the accounting equation, which illustrates that a company’s resources (assets) are financed either by borrowing money (liabilities) or by using the owner's funds (equity).

This balance must always hold true; ensuring that what a company owns is balanced against what it owes and the residual interest of its owners. Therefore, if you take total liabilities and add them to shareholder equity, you should arrive at the total assets, which provides a snapshot of a company's financial standing at a given point in time.

The other options focus on different aspects of financial statements and transactions. For instance, net income relates to the income statement, representing profitability over a period through revenues minus expenses. The equations involving cash flows provide insights into cash management and overall liquidity but do not represent the balance sheet's structural integrity. Thus, the right answer distinctly outlines a fundamental accounting principle relevant to understanding a company’s financial health.