State BPA Fundamental Accounting Practice Exam

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Question: 1 / 400

What type of account is 'Owner’s Capital'?

Asset

Liability

Equity

Owner’s Capital is classified as an equity account. Equity represents the owner’s claim on the assets of the business after all liabilities have been deducted. In other words, it reflects the residual interest that the owner has in the business. Owner’s Capital specifically reflects the contributions made by the owner into the business and includes any retained earnings that have not been withdrawn by the owner. This contrasts with asset accounts, which represent resources owned by the business, and liability accounts, which represent obligations to outside parties. Revenue accounts measure income generated from operations but do not reflect ownership interest in the same way equity does. Understanding this classification is essential for accurately preparing financial statements and assessing the financial health of a business.

State BPA Fundamental Accounting Practice Exam

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