Equity or Capital is best described as:

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Multiple Choice

Equity or Capital is best described as:

Equity is the residual interest of the owners in the assets of the business after deducting liabilities. In simple terms, it’s what owners actually own once all debts are paid. This follows the basic accounting equation: Assets minus Liabilities equals Equity. For example, if a company has assets worth 100 and owes 60 to creditors, the owners’ claim is 40. Equity grows when owners put in more funds or when the business earns profits that are retained, and it decreases with losses or withdrawals. It’s not merely the cash invested at the start, and it’s not net income by itself, since net income only becomes part of equity when it’s retained. It also isn’t simply “external funding sources,” because some external funds come in as liabilities, not equity.

Equity is the residual interest of the owners in the assets of the business after deducting liabilities. In simple terms, it’s what owners actually own once all debts are paid. This follows the basic accounting equation: Assets minus Liabilities equals Equity. For example, if a company has assets worth 100 and owes 60 to creditors, the owners’ claim is 40. Equity grows when owners put in more funds or when the business earns profits that are retained, and it decreases with losses or withdrawals. It’s not merely the cash invested at the start, and it’s not net income by itself, since net income only becomes part of equity when it’s retained. It also isn’t simply “external funding sources,” because some external funds come in as liabilities, not equity.

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