Is owner’s equity an asset or a liability?

• A. Liability
• B. Asset
• C. Revenue
• D. Expense

Answer: (A)

Owner's equity represents the owner's residual claim on the business’s assets after all liabilities have been paid. In accounting, the fundamental equation is Assets = Liabilities + Owner's Equity, so equity is what remains for the owners after debts are settled. It is not an asset because assets are resources the business controls, and it is not a liability because liabilities are obligations to outsiders. It is also not a revenue or an expense, since those items relate to the income statement and affect profit, not the ownership stake in the assets. On the balance sheet, owner’s equity appears in its own section as the owners' claim to the company’s net assets.