The definition of equity as given in the Conceptual Framework shows that:
A) Equity = Assets - Expenses
B) Equity = Assets - Liabilities
C) Equity = Income - Expenses
D) Equity = Assets - Liabilities - Expenses

Question

Quizplus · Accepted Answer

According to the Conceptual Framework, equity is defined as the residual interest in the assets of an entity after deducting all its liabilities. Therefore, the correct formula for equity is Equity = Assets - Liabilities. Option A is incorrect because expenses are deducted from revenue to arrive at net income, not equity. Option C is incorrect because income and expenses are components of the income statement, not equity. Option D is incorrect because expenses are not deducted from equity, but from revenue to arrive at net income.

The Definition of Equity as Given in the Conceptual Framework