Final answer:
Owners' equity represents the owner's interest or worth in a business, calculated as the difference between the business's total assets and total liabilities. In accounting, this is represented on the T-account where assets equal liabilities plus net worth.
Step-by-step explanation:
The best description of owners' equity is the owner's interest or worth in the business. This concept is a key component of the accounting equation, where the owner's equity equates to the total assets minus total liabilities. In simple terms, assets are what the company owns or controls, while liabilities are what the company owes to outsiders. The difference represents the net worth or equity of the business. For a healthy business, this value will be positive, indicating that the assets exceed the liabilities.
Using a T-account as a reference, assets are on the left side, and liabilities, along with owners’ equity, are on the right side. The purpose of the T-account is to ensure that the total assets are always equal to the total of liabilities and net worth. In practical examples, such as homeownership, equity is calculated by taking the market value of a property and subtracting the amount still owed on any mortgages or loans against it.