In a balance sheet, if assets are $78,500 and liabilities are $37,600, what is owner's equity?

In a balance sheet, if assets are $78,500 and liabilities are $37,600, what is owner's equity?

• A. $40,900
• B. $21,000
• C. $198,280
• D. $78,500

Answer: (A)

Owner’s equity represents what’s left for the owners after liabilities are paid, so it follows the accounting equation: Assets = Liabilities + Owner’s Equity. To find Owner’s Equity, subtract Liabilities from Assets: 78,500 − 37,600 = 40,900. Therefore, owner’s equity is 40,900. Other numbers don’t fit the relationship: they’d imply a different balance between assets and liabilities (for example, 78,500 ignoring liabilities, or a result that doesn’t align with the given assets and liabilities). But using the equation directly gives 40,900.

Owner’s equity represents what’s left for the owners after liabilities are paid, so it follows the accounting equation: Assets = Liabilities + Owner’s Equity. To find Owner’s Equity, subtract Liabilities from Assets: 78,500 − 37,600 = 40,900. Therefore, owner’s equity is 40,900.

Other numbers don’t fit the relationship: they’d imply a different balance between assets and liabilities (for example, 78,500 ignoring liabilities, or a result that doesn’t align with the given assets and liabilities). But using the equation directly gives 40,900.