Define Owner's Equity.

Define Owner's Equity.

• A. The money put into the business
• B. The profits earned by the business
• C. The money borrowed from lenders
• D. The total assets

Answer: (A)

Owner's equity is the owner's claim on the business assets, which starts with the money the owner puts into the business as an initial investment. In beginner terms, this money invested by the owner forms the owner's stake in the company and serves as the foundation for all the equity in the business. This is the best description because it identifies the owner's investment as the source of equity. Profits earned by the business do increase owner’s equity over time, but they are a result of business performance and not the basic idea of what owner’s equity represents. Money borrowed from lenders creates liabilities, not equity, and total assets are the resources the business has, not the owner’s stake in those resources.

Owner's equity is the owner's claim on the business assets, which starts with the money the owner puts into the business as an initial investment. In beginner terms, this money invested by the owner forms the owner's stake in the company and serves as the foundation for all the equity in the business.

This is the best description because it identifies the owner's investment as the source of equity. Profits earned by the business do increase owner’s equity over time, but they are a result of business performance and not the basic idea of what owner’s equity represents. Money borrowed from lenders creates liabilities, not equity, and total assets are the resources the business has, not the owner’s stake in those resources.