Which statement accurately reflects the relationship between liabilities and equity?

The correct statement describes the relationship between liabilities and equity accurately through the equation of the accounting equation, which is integral to understanding financial statements. This equation states that total assets are equal to the sum of total liabilities and total equity. By rearranging this equation, one can derive that liabilities equal total assets minus equity.

This relationship highlights how a business finances its assets, where liabilities represent the debts or obligations that the business has, and equity represents the residual interest of the owners after all liabilities have been settled. This foundational concept is essential in financial accounting as it helps analyze a company's financial position, indicating how much of the assets are financed through debt versus the owners' investment.

In contrast to this correct option, it's important to note that while the other statements touch on aspects of liabilities and equity, they do not accurately describe their relationship according to the established principles of accounting. Owner's equity is not represented by liabilities, and an increase in liabilities does not universally reduce equity; this depends on the overall financial context of the business. Moreover, equity can, in some scenarios, exceed liabilities, especially in profitable organizations, thus invalidating the assertion that equity is always less than liabilities. This underscores the importance of understanding the accounting equation and the roles that liabilities and equity play