Question

Which of the following best describes owner's equity?

A. Equal to the business' liabilities less the business' assets
B. The owner's interest or worth in the business
C. What the owner owes the business
D. What the business owes

Answer 1

Owner's equity represents the owner's financial interest in their business, calculated as the difference between the business's total assets and total liabilities, reflecting the owner's net worth in the business.

Step-by-step explanation:

Owner's equity best describes the owner's interest or worth in the business. This is typically represented as the total assets minus the total liabilities of the business. In the context of a 'T-account', which separates a firm's assets and liabilities, any healthy business will have a positive net worth, which is equivalent to the owner's equity.

This means the assets of the business always equal the liabilities plus the net worth. Owner's equity is not what the business or owner owes but rather what is 'owned' after all debts are subtracted; hence it is a reflection of the financial value the owner holds in the business.