Which statement best describes equity in terms of ownership?

• A. The owner's claim on the business after liabilities
• B. The total revenue for the period
• C. The market value of assets
• D. The depreciation expense

Answer: (A)

Equity in terms of ownership is the owner's residual interest in the business after liabilities are settled. On the balance sheet, it represents what remains for the owners once the company’s debts have been paid, which is why assets minus liabilities equal equity. For example, if a company has assets of 1,200 and liabilities of 800, the equity is 400, reflecting the owners’ claim to the remaining assets. This ownership stake is composed of items like common stock, additional paid-in capital, and retained earnings, and it can be affected by treasury stock or losses, even potentially turning negative. The other statements describe revenue, the market value of assets, or a depreciation expense, none of which capture the owners’ claim on the business.