Equity on the balance sheet is best described as:

• A. The total amount of cash on hand.
• B. The claim of the owner(s) on the assets of the business.
• C. The sum of current liabilities.
• D. The market value of outstanding shares.

Answer: (B)

Equity on the balance sheet represents the owners’ residual interest in the company’s assets after all liabilities are paid. It’s the claim the owners have on what the business owns, and it’s shown as owners’ or shareholders’ equity. This is true because if you take total assets and subtract total liabilities, what remains is what belongs to the owners. Equity grows when the company earns profits or owners invest additional capital, and it shrinks when the company incurs losses or owners take withdrawals (like dividends).

Cash on hand is an asset, not an owner’s claim. Current liabilities are what the company owes to others, not what belongs to the owners. The market value of outstanding shares is a market measure and can differ from the book value reported as equity on the balance sheet.