Which financial measure represents the residual interest in a company's assets after liabilities are subtracted?

Which financial measure represents the residual interest in a company's assets after liabilities are subtracted?

• A. Revenue
• B. Equity
• C. Net income
• D. Assets

Answer: (B)

Equity represents the ownership claim on a company's assets after all liabilities have been settled. It comes from the basic accounting equation: Assets = Liabilities + Equity. Rearranging gives Equity = Assets − Liabilities, so it is the residual interest left for owners once debts are paid. Revenue and net income relate to how much money the company earns, not the remaining claim on assets, while assets are the resources the company controls. Equity also includes contributed capital and retained earnings, which grow as profits accumulate.

Equity represents the ownership claim on a company's assets after all liabilities have been settled. It comes from the basic accounting equation: Assets = Liabilities + Equity. Rearranging gives Equity = Assets − Liabilities, so it is the residual interest left for owners once debts are paid. Revenue and net income relate to how much money the company earns, not the remaining claim on assets, while assets are the resources the company controls. Equity also includes contributed capital and retained earnings, which grow as profits accumulate.