You tell Alex that you're almost done with the balance sheet. Because his restaurant is a sole proprietorship, there's only one section that still needs to be completed: owners' equity. He asks what that is and how you calculate it.

Owner's equity is how much of the assets the owner can claim.

Owner's Equity = Assets - Liabilities

Tell Alex to subtract the value of the liabilities from the total assets to find owner's equity.

Explanation:

Owner's Equity is how much the owner (Alex) has claim of the business's assets, or how much of the business "belongs" to him.

The balance sheet is usually set up with two sides: left and right.

On the left side, you have the assets. On the right, there are liabilities and owner's equity.

The bottom of a balance sheet also has two double-underlined totals, which are the same. The is because the left and right sides are equal.

The balance sheet is set up using the fundamental accounting equation:

Assets = Liabilities + Owner's Equity

If you are looking for owner's equity, you can rearrange the equation like in math. Subtract liabilities from both sides, resulting in:

Owner's Equity = Assets - Liabilities

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