What is the relationship between owners equity, assets, and liabilities?

The correct answer illustrates a fundamental concept in accounting known as the accounting equation. Owners equity represents the residual interest in the assets of a business after subtracting liabilities. In other words, the formula establishes that the resources owned by the business (assets) are financed by both creditors (liabilities) and the owners (owners equity).

By asserting that owners equity is the result of subtracting liabilities from assets, it provides clarity on how a business's net worth is determined. This relationship showcases that for any business, if you were to deduct what is owed (liabilities) from what is owned (assets), the remainder represents the owner's claim or equity in the business.

While other options present variations on the accounting equation, they do not align with the standard and widely accepted expression of the relationship between these three financial components. Understanding this relationship is crucial for analyzing financial statements and the overall health of a business.