Which of the following is an equity account?

• A. Retained Earnings
• B. Accounts Receivable
• C. Inventory
• D. Loans Payable

Answer: (A)

Equity represents the owners’ claim on the company after all debts are considered, and it includes accounts that show profits kept in the business. Retained earnings specifically track cumulative net income that the company has kept rather than distributed as dividends, so it sits within owners’ equity on the balance sheet. The other items are not equity: accounts receivable and inventory are assets—they are resources the company expects to convert to cash or use in operations—while loans payable is a liability, a debt the company owes to outsiders. Therefore, retained earnings is the equity account.