Owner's equity is defined as what?

Owner's equity represents the residual interest in the assets of the company after deducting liabilities. This means that it is positioned on the balance sheet alongside liabilities but on the opposite side from assets. In a basic accounting equation, the relationship is expressed as Assets = Liabilities + Owner's Equity. This framework helps illustrate that owner’s equity is connected directly to the claims that owners have on the assets of the business after all debts (liabilities) have been accounted for.

Understanding where owner's equity is positioned on the balance sheet is crucial because it gives insights into the financial health of the business. A growing owner's equity can indicate that the business is profitable and able to reinvest in itself or return profits to its owners.

While the other choices involve important concepts within accounting and finance, they do not accurately describe owner’s equity. For instance, it is not classified as a long-term asset or merely part of property and equipment, nor is it a direct measure of profitability as profitability relates more closely to income statements rather than balance sheets.