Net worth is calculated by which formula?

Net worth is calculated by which formula?

• A. Total assets minus total liabilities
• B. Total assets plus total liabilities
• C. Total revenue minus total costs
• D. Total liabilities minus total assets

Answer: (A)

Net worth reflects what the owner actually owns after accounting for what is owed. It is found by subtracting total liabilities from total assets, giving the owner's equity in the business or personal finances. For example, if assets total 600,000 and liabilities total 350,000, net worth is 250,000. Adding assets and liabilities together isn’t a standard measure of value, and it doesn’t isolate ownership after debts. Revenue minus costs shows profit, not net worth. And liabilities minus assets would give a negative of net worth (often called a deficit), which isn’t the usual way net worth is expressed. Net worth can be negative if liabilities exceed assets.

Net worth reflects what the owner actually owns after accounting for what is owed. It is found by subtracting total liabilities from total assets, giving the owner's equity in the business or personal finances. For example, if assets total 600,000 and liabilities total 350,000, net worth is 250,000.

Adding assets and liabilities together isn’t a standard measure of value, and it doesn’t isolate ownership after debts. Revenue minus costs shows profit, not net worth. And liabilities minus assets would give a negative of net worth (often called a deficit), which isn’t the usual way net worth is expressed. Net worth can be negative if liabilities exceed assets.