Which equation represents Capital or Equity?

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Multiple Choice

Which equation represents Capital or Equity?

The fundamental relation among what a business owns, owes, and the owners’ stake is that assets equal liabilities plus equity. Equity is the owners’ residual interest in the assets after liabilities are settled. If you solve that equation for equity, you get equity equals assets minus liabilities. This is why the expression assets minus liabilities equals equity matches the standard accounting framework. For example, with assets of 100 and liabilities of 60, equity is 40. The other forms mix or invert the relationships and do not reflect how equity is derived from assets and liabilities.

The fundamental relation among what a business owns, owes, and the owners’ stake is that assets equal liabilities plus equity. Equity is the owners’ residual interest in the assets after liabilities are settled. If you solve that equation for equity, you get equity equals assets minus liabilities. This is why the expression assets minus liabilities equals equity matches the standard accounting framework. For example, with assets of 100 and liabilities of 60, equity is 40. The other forms mix or invert the relationships and do not reflect how equity is derived from assets and liabilities.

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