Question

question 1 of 25
policies
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capital is
equal to assets minus owner’s equity.
an owner’s permanent investment in the business.
equal to liabilities plus drawings.
equal to liabilities minus owner’s equity.
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Explanation:

To solve this, we recall the basic accounting equation: Assets = Liabilities + Owner’s Equity (which is also called Capital in some contexts). Let's analyze each option:

• Option 1: Assets - Owner’s Equity = Liabilities, not Capital. So this is wrong.
• Option 2: Capital (Owner’s Equity) is the owner’s permanent investment in the business. This matches the definition.
• Option 3: Liabilities + Drawings has no relation to Capital. Drawings are withdrawals by the owner, not part of the capital formula. So this is wrong.
• Option 4: Liabilities - Owner’s Equity is not a valid formula. The correct relation is Assets = Liabilities + Owner’s Equity, so rearranged, Owner’s Equity (Capital) = Assets - Liabilities, not Liabilities - Owner’s Equity. So this is wrong.

Answer:

B. an owner’s permanent investment in the business. (Note: Assuming the options are labeled A, B, C, D with the first option as A, second as B, etc. If the original labels are different, adjust accordingly. But based on the order, the second option is the correct one.)