Pivot Point Business 103 Practice Test

The balance sheet is organized around the accounting equation: assets equal liabilities plus owner's equity. The three major components are assets, liabilities, and owner's equity. Assets are resources the company controls that have value (like cash, inventory, and accounts receivable). Liabilities are obligations the company owes to others (such as loans and accounts payable). Owner's equity represents the owner's claim on the business after liabilities are deducted, including contributed capital and retained earnings. Together, they show what the company owns, what it owes, and what belongs to the owner at a specific point in time. The other options either list income statement items (revenue, expenses, and net income), list only a subset of assets, or refer to organizational functions rather than the structure of the balance sheet.