Which account is an example of Equity?

Which account is an example of Equity?

• A. Drawings
• B. Accounts Payable
• C. Capital
• D. Fees Received

Answer: (C)

Equity represents the owner's interest in the assets of a business after deducting liabilities. It reflects the net worth of the business and is fundamentally composed of the owner's contributions, retained earnings, and other elements affecting ownership interest. The capital account specifically represents the amount invested by the owner(s) in the business. This includes initial investments and any additional funds contributed over time. When an owner's investment grows through profits retained in the business, this is also reflected in the capital account, contributing to overall equity. In contrast, the other choices do not represent equity. Drawings refer to the amounts the owner withdraws from the business for personal use, which reduces equity. Accounts Payable are liabilities indicating amounts owed to creditors, not a part of ownership interest. Fees Received represent income generated from services rendered, impacting revenue and assets but not directly classified under equity. Thus, capital is the correct example of an equity account.

Equity represents the owner's interest in the assets of a business after deducting liabilities. It reflects the net worth of the business and is fundamentally composed of the owner's contributions, retained earnings, and other elements affecting ownership interest.

The capital account specifically represents the amount invested by the owner(s) in the business. This includes initial investments and any additional funds contributed over time. When an owner's investment grows through profits retained in the business, this is also reflected in the capital account, contributing to overall equity.

In contrast, the other choices do not represent equity. Drawings refer to the amounts the owner withdraws from the business for personal use, which reduces equity. Accounts Payable are liabilities indicating amounts owed to creditors, not a part of ownership interest. Fees Received represent income generated from services rendered, impacting revenue and assets but not directly classified under equity. Thus, capital is the correct example of an equity account.