Which term best represents the owners' equity described as Common Stock plus Retained Earnings?

Which term best represents the owners' equity described as Common Stock plus Retained Earnings?

• A. Net Income
• B. Owners' Equity
• C. Assets
• D. Liabilities

Answer: (B)

Owners' equity is the residual claim of the owners on the company’s assets after liabilities are deducted. It is typically shown on the balance sheet as the sum of contributed capital and earnings kept in the business, which are represented here by Common Stock and Retained Earnings. Common Stock shows the capital invested by owners, while Retained Earnings accumulate profits kept in the company. Together, they constitute the total owners' equity. Net income affects Retained Earnings but is not itself the total equity; assets and liabilities are separate sections of the balance sheet and do not represent owners' equity.

Owners' equity is the residual claim of the owners on the company’s assets after liabilities are deducted. It is typically shown on the balance sheet as the sum of contributed capital and earnings kept in the business, which are represented here by Common Stock and Retained Earnings. Common Stock shows the capital invested by owners, while Retained Earnings accumulate profits kept in the company. Together, they constitute the total owners' equity. Net income affects Retained Earnings but is not itself the total equity; assets and liabilities are separate sections of the balance sheet and do not represent owners' equity.