Equity is the residual interest in the entity’s assets after deducting its liabilitiesGroup of answer choicesTrueFalse

The statement "Equity is the residual interest in the entity's assets after deducting its liabilities" is True.

Explanation

Equity represents the ownership value in a company or entity after all liabilities have been accounted for. It can be thought of as what the owners would receive if all assets were liquidated and all debts were settled. In an accounting context, equity is calculated using the fundamental accounting equation:

$\text{Equity} = \text{Assets} - \text{Liabilities}$

Where:

• Assets are resources owned by the entity (e.g., cash, inventory, property).
• Liabilities are obligations or debts that the entity owes to outside parties (e.g., loans, accounts payable).

In this way, equity reflects the net worth of the entity from the perspective of its owners, encapsulating both their investments into the enterprise and the retained earnings accumulated over time. This definition is foundational in corporate finance and accounting, making it a key concept in understanding a company's financial health.