Question

In the Accounting Equation (AE), Equity can be split into what two (2) subcategories?

a) Assets and Liabilities
b) Income and Expenses
c) Owner's Capital and Owner's Drawings
d) Accounts Payable and Accounts Receivable

Answer 1

In the Accounting Equation, Equity can be divided into Owner's Capital and Owner's Drawings, showing the owner's net contribution after investments and personal withdrawals. The correct answer is option (C)

Step-by-step explanation:

In the Accounting Equation (AE), Equity can be split into two subcategories: Owner's Capital and Owner's Drawings. Owner's Capital represents the initial amount and any additional investments made by the owners into the company, while Owner's Drawings refer to the owner's withdrawals from the company for personal use. This categorization reflects the owner's stake in the company after considering what they have contributed and what they have taken out.