Which term represents the owner's claims to the assets of the business?

• A. Cash basis
• B. General journal
• C. Owner's equity
• D. Accounts payable

Answer: (C)

Owner's equity represents the owner's claim to the assets of the business. In accounting, assets are the resources a business controls, while liabilities are what the business owes to others. What remains after settling those obligations is the owner's claim, or equity. This is reflected on the balance sheet as the residual interest: Assets equal Liabilities plus Owner's Equity. When the owner puts in cash or other value, both assets and owner's equity rise; when the business earns profits, those earnings increase equity; losses or withdrawals reduce it. Equity is made up of contributed capital and retained earnings, showing the owner’s ongoing stake in the company.

Cash basis has to do with when revenue and expenses are recognized, not the owner’s claim to assets. The general journal is a book for recording transactions, and accounts payable is a liability representing amounts owed to others.