What does the extended accounting equation include?

The extended accounting equation provides a broader view of a company's financial situation by incorporating revenues and expenses into the basic accounting equation. The traditional accounting equation is Assets = Liabilities + Owner's Equity. However, to understand profitability and the overall financial health of a business, it's essential to account for revenues and expenses as well.

The correct formulation includes all components: Assets, Liabilities, Owner's Equity, Revenues, and Expenses. In this context, the equation presented reflects this relationship effectively. By rearranging expenses and revenues with assets and liabilities, it emphasizes how the outcomes of operations (in the form of revenues and expenses) relate to the company’s resources (assets) and obligations (liabilities). Hence, it rightly captures the essence of an extended accounting equation.

In this case, the inclusion of revenues and expenses provides a complete picture of the financial situation and clarifies how they affect owner’s equity over time. The other options do not incorporate all components or misrepresent the relationships between these financial elements, failing to depict a full spectrum of a firm's financial position.