Owner's Equity from the Accounting Equation

Steps:

• Recall the fundamental accounting equation: Assets = Liabilities + Owner's Equity.
• Rearrange the equation to isolate Owner's Equity: Owner's Equity = Assets - Liabilities.
• Identify that total assets and total liabilities represent the full balance sheet scope.
• Confirm this calculation determines the owner's residual interest in the business.

Why A is correct:

• It directly follows the accounting equation, where owner's equity equals total assets minus total liabilities, representing the net worth owned by the proprietor.

Why the others are wrong:

• B calculates working capital, not owner's equity.
• C ignores non-current liabilities, understating equity.
• D only considers long-term items, omitting current assets and liabilities.

Final answer: A