What does owner's equity represent in a company's balance sheet?

Owner's equity on a company's balance sheet represents the residual interest in the assets of the entity after deducting liabilities. In simpler terms, it reflects what the owners truly own. When you look at the balance sheet, assets are all the resources the company owns, like cash, inventory, and property. Liabilities represent what the company owes to creditors, including loans and outstanding debts.

Owner's equity is calculated using the formula: Owner's Equity = Assets - Liabilities. This means that once liabilities are subtracted from total assets, the remaining amount is the equity that belongs to the owners or shareholders. It serves as an important indicator of financial health and stability, showing how much value is attributable to the owners of the company. This measure can include retained earnings, which represent the accumulated profits that have been reinvested in the business.

The other options provided do not accurately describe owner's equity. Total income reflects the profit generated by the company over a period, while total debts focus solely on liabilities without considering the assets. Similarly, revenue generated from operations pertains to the income produced through the company's business activities during a financial period, not the net worth or equity position of the company itself.