Entrepreneurship and Small Business (ESB) Certification Practice Exam

What term describes the owner's remaining value after all liabilities have been deducted?

1. Assets

2. Equity

3. Liabilities

4. Capital

The correct answer is: Equity

The term that describes the owner's remaining value after all liabilities have been deducted is equity. This represents the ownership interest in a business and is calculated by taking the total assets and subtracting total liabilities. In essence, equity reflects the net worth of the business from the owner's perspective, indicating how much of the business is owned outright by the owner. Assets refer to everything the business owns, such as cash, inventory, buildings, and equipment. Liabilities represent the obligations or debts the business owes to others, such as loans and accounts payable. Capital typically refers to financial resources or funds available for use, which might overlap with equity but has a broader context that can also include funds invested in the business rather than reflecting ownership value. Understanding the distinctions between these terms is vital for assessing the financial health and ownership structure of a business.