The amount of a company's assets and the amount of the company's liabilities are known. Which computation should be performed to determine the company's owners' equity amount according to the accounting equation?

• A. Assets plus liabilities
• B. Assets minus liabilities
• C. Liabilities minus assets
• D. Assets times liabilities

Answer: (B)

Owners' equity is the residual claim of the owners after liabilities are subtracted from assets. The accounting equation is Assets = Liabilities + Owners' Equity, so rearranging gives Owners' Equity = Assets − Liabilities. Therefore, the correct computation is subtracting liabilities from assets. For example, if assets are 500 and liabilities are 200, owners' equity is 300. Adding assets and liabilities would not reflect the owners' claim, subtracting assets from liabilities would invert the relationship, and multiplying assets by liabilities has no basis in this equation.