What calculation should be used to determine liabilities?

Question

Liabilities = Profits - Net Losses

Liabilities = Owner's equity x Assets

Liabilities = Assets = Owner's equity

Liabilities = Assets + Owner's equity

Answer 1

The correct formula to determine liabilities is:

Liabilities = Assets - Owner's Equity

This is derived from the accounting equation, which states:

Assets = Liabilities + Owner's Equity

Therefore, if you want to isolate liabilities, you can rearrange the equation to solve for them. None of the options you provided correctly state this relationship, but it's important to focus on the fact that liabilities are equal to the difference between assets and owner's equity.