Which concept in financial accounting refers to the owners' residual interest in the assets after liabilities are deducted?

• A. Net Worth
• B. Assets
• C. Liabilities
• D. Equity

Answer: (D)

Equity is the owners' residual interest in the assets after liabilities are deducted. In double-entry accounting, every asset is funded either by what the business owes (liabilities) or by the owners' investment and retained earnings (equity). The fundamental equation Assets = Liabilities + Equity shows that if you subtract liabilities from assets, what's left belongs to the owners—that's equity. It's not the assets themselves, and it's not the debts owed. Net worth is a related concept (assets minus liabilities), which aligns with equity, but the standard term used for the owners' claim on the business is equity.