What are the three primary components of the accounting equation?

The correct answer identifies the three primary components of the accounting equation, which are assets, liabilities, and owner's equity. This equation is fundamental to accounting and reflects the relationship between these components.

Assets represent what a business owns, including cash, inventory, buildings, and equipment. Liabilities are what a business owes to others, such as loans and accounts payable. Owner's equity is the residual interest in the assets of the business after deducting liabilities, essentially representing the owner's claim on the business assets.

The accounting equation itself is expressed as: Assets = Liabilities + Owner's Equity. This foundational principle ensures that a company’s financial statements are balanced, providing a clear picture of the financial health of the organization. Understanding this equation is crucial for analyzing financial statements and making informed business decisions.

The other options do not capture the comprehensive relationship encapsulated in the accounting equation. For instance, while revenue and expenses are important for profit calculations, they do not appear in the basic structure of the accounting equation.