Which statement best describes Owner's Equity?

Which statement best describes Owner's Equity?

• A. The owner's claim on the assets of the business
• B. The market value of the owner's investment
• C. The total liabilities of the company
• D. The cash available to the owner

Answer: (A)

Owner's Equity is the owner's residual claim on the business's assets. In accounting terms, assets are financed by both liabilities and the owner's stake, so Owner's Equity equals assets minus liabilities. It represents what remains for the owner after all debts are paid and reflects the owner’s ownership interest in the company. The other ideas aren’t descriptions of ownership interest: market value of the investment can differ from the accounting equity, liabilities are what the company owes (not what the owner owns), and cash on hand is just an asset, not the owner’s claim.

Owner's Equity is the owner's residual claim on the business's assets. In accounting terms, assets are financed by both liabilities and the owner's stake, so Owner's Equity equals assets minus liabilities. It represents what remains for the owner after all debts are paid and reflects the owner’s ownership interest in the company.

The other ideas aren’t descriptions of ownership interest: market value of the investment can differ from the accounting equity, liabilities are what the company owes (not what the owner owns), and cash on hand is just an asset, not the owner’s claim.