What does "Owner's Equity = Assets - Liabilities" imply?

The equation "Owner's Equity = Assets - Liabilities" directly indicates how the ownership stake in a business is calculated. Owner's equity represents the residual interest in the assets of the entity after deducting liabilities. This means that if you were to sell all of the assets and pay off all of the liabilities, the amount left over is the owner's equity, or essentially the net worth of the business.

When all assets are accounted for and all obligations (liabilities) are settled, what remains is what the owners truly own. This underscores the fact that owner's equity reflects the growth or decline in the business's value and is crucial for assessing financial health.

The other options present different scenarios but do not accurately capture the fundamental implication of the equation. While assets can exceed liabilities, they do not always do so; hence, equity can indeed be negative in cases where liabilities surpass assets. Therefore, the idea that owner's equity is synonymous with the net worth of a business is the most accurate understanding of that equation.