Owner's Equity as Residual Claim on Assets

Steps:

• Recall the accounting equation: Assets = Liabilities + Owner's Equity.
• Identify owner's equity as the owner's investment, profits, and drawings in the business.
• Recognize it as the net amount the business owes the owner after settling external liabilities.
• Match this to the choice describing the debt to the owner.

Why B is correct:

• Owner's equity is defined in accounting as the residual interest, representing the amount owed by the business to the owner per the balance sheet equation.

Why the others are wrong:

• A: This describes cash, a single current asset, not equity.
• C: This is total assets, the left side of the accounting equation, excluding liabilities.
• D: This calculates working capital, focusing only on short-term items, not full equity.

Final answer: B