Answer & Solution
Answer: Option
D
Solution:
The correct answer is D: Total assets - Total outside liabilities
Here's why:
* Owner's Equity (also called Net Worth or Capital) represents the owner's stake in the company.
* Think of it this way: If you sold all the company's assets and paid off all its debts, what would be left over belongs to the owner(s).
* Total Assets are everything the company owns (cash, buildings, equipment, etc.).
* Total outside liabilities are everything the company owes to others (loans, accounts payable, etc.).
* The Accounting Equation is: Assets = Liabilities + Owner's Equity.
* We can rearrange this equation to solve for Owner's Equity: Owner's Equity = Assets - Liabilities
* Therefore, Total Assets - Total outside liabilities = Owner's Equity.
Let's look at why the other options are incorrect:
* Option A: Fixed assets - Flood liabilities
* Incorrect: This only considers a specific type of asset and a specific, and quite unusual, type of liability.
* Option B: Fixed assets - Current liabilities
* Incorrect: Again, this is too narrow. It doesn't include all assets or all liabilities.
* Option C: Current assets - Fixed liabilities
* Incorrect: Same reason as A and B; only considers specific assets and liabilites, not the overall view.
