Florida General Contractor Practice Exam

Which term describes the owner’s share of the assets of a business after deducting liabilities?

1. Revenue

2. Liability

3. Equity

4. Expense

The correct answer is: Equity

The term that describes the owner’s share of the assets of a business after deducting liabilities is equity. Equity represents the ownership interest in the business and is calculated as the difference between total assets and total liabilities. In simpler terms, it reflects what the owners truly own outright after the debts of the business have been paid. To elaborate further, equity can take various forms, including common stock, retained earnings, and additional paid-in capital. It is important for both financial reporting and understanding the financial health of a business since it indicates how much value shareholders would receive if the business were to be liquidated and all debts settled. Understanding equity is crucial for general contractors as it can impact financing options and investment strategies. Recognizing the relationship between assets, liabilities, and equity helps in making informed financial decisions that can affect the overall profitability and sustainability of a business.