Equity is defined as which of the following?

• A. Assets minus Liabilities
• B. Same as balance (net worth)
• C. Cash on hand
• D. Liabilities after tax

Answer: (B)

Equity is the residual interest in the assets after liabilities are deducted, i.e., the net worth of the entity. In simple terms, it's what the owners actually own once debts are paid. That’s why equity is described as the balance or net worth—the amount left over represents the owners’ stake in the company. The idea that equity is just assets minus liabilities reflects the same concept but as a calculation; the essential meaning remains the net worth. Cash on hand is just a cash asset, not the owners’ stake, and liabilities after tax describe what the company owes rather than what belongs to the owners.