What example illustrates owner's equity within a company?

Owner's equity represents the residual interest in the assets of a company after deducting liabilities. It essentially reflects the ownership stake of shareholders in the company. Retained earnings are a vital component of owner's equity, as they comprise the portion of net income that is retained by the company instead of being distributed to shareholders as dividends. When a company reports retained earnings, it illustrates how much profit has been reinvested back into the business, thus contributing to the overall value that belongs to the owners. This growth in retained earnings positively affects owner’s equity, demonstrating how the business is utilizing profits to enhance its financial standing over time.

In contrast, taking out a loan increases liabilities, while total liabilities themselves do not equate to owner’s equity. Declaring bankruptcy usually indicates financial distress and a reduction in owner’s equity. Therefore, the reporting of retained earnings is the most direct illustration of owner’s equity within a company.