Question

How is the owner's equity of a sole trader recorded?

A) As liabilities
B) As revenues
C) As assets
D) As capital or investment

Answer 1

The owner's equity of a sole trader is recorded as capital or investment on the liabilities side of the T-account to balance the firm's assets and liabilities.

Step-by-step explanation:

The owner's equity of a sole trader is recorded as capital or investment. In accounting, a T-account is used to represent a firm's assets on the left and its liabilities on the right. The owner's equity, also referred to as net worth, is the difference between the total assets and total liabilities, and it is recorded on the liabilities side to balance the T-account. For a healthy business, this net worth is positive, meaning that the assets exceed the liabilities, indicating a financial surplus.