State BPA Fundamental Accounting Practice Exam

What is the left side of an owner's equity account referred to as?

1. Increase Side

2. Decrease Side

3. Asset Side

4. Liability Side

The correct answer is: Decrease Side

The left side of an owner's equity account is referred to as the Decrease Side. In accounting, owner’s equity represents the residual interest in the assets of an entity after deducting liabilities, and it helps to illustrate how much the owner possesses after all financial obligations have been met. When transactions in an owner's equity account occur, the left side records decreases to equity. This typically happens through withdrawals made by the owner or losses incurred by the business. Each of these transactions effectively reduces the overall equity, which is why the left side is designated as the Decrease Side. Hence, understanding this concept is critical as it directly impacts the owner’s equity balance and provides insight into the financial health of the business. The other options do not correctly define this aspect of financial accounting. The Increase Side would reference the right side of the owner’s equity account, where investments and profits are recorded. Asset Side and Liability Side are terms associated with different accounts in the accounting equation and do not specifically relate to owner’s equity.