What is the definition of equity in accounting?

The definition of equity in accounting refers to the residual interest in the assets of a business after deducting liabilities. This concept provides a clear representation of the ownership stake that shareholders or owners have in a company. When you subtract total liabilities from total assets, you arrive at equity, which can also be seen as the net worth of the business. This metric is crucial for understanding the financial health and stability of an organization, as it reflects how much of the company’s assets are financed by the owners’ contributions versus external debts.

The other choices describe different financial concepts: one pertains to the obligations the business must fulfill, another refers to resources used up in operations, and the last one describes the acquisition of goods or services—none of which capture the essence of equity as the difference between assets and liabilities. Hence, identifying equity in accounting as the result of subtracting liabilities from assets encapsulates its meaning accurately within the framework of financial accounting.