Question

The definition of equity is:

A. Debts of a business that have yet to be paid
B. Resources acquired by a business that are consumed by the business
C. Purchase of goods or services consumed during the accounting period
D. Result of subtracting liabilities from assets

Answer 1

Equity is defined as the difference between the value of assets and liabilities. For instance, a homeowner's equity is the home's market value minus any outstanding bank loans. Similarly, a company's equity is its assets minus its liabilities.

Step-by-step explanation:

The definition of equity, in the context of a corporation or personal finance, can be understood as the difference between the value of the assets and the value of the liabilities. Specifically, it is the result of subtracting liabilities from assets. For example, in the case of a homeowner, if the market value of the house is $200,000 and $180,000 is still owed to the bank, the equity would be $20,000. This concept is similar in a corporate setting, where equity refers to the net worth of the company, which is what remains after liabilities are deducted from the assets. A T-account helps to illustrate this, where assets are on the left side, and liabilities, along with net worth (or equity), are on the right side, ensuring that both sides balance each other out.