Which financial statement reveals the equity or capital in a business?

• A. Income Statement
• B. Balance Sheet
• C. Statement of Cash Flows
• D. Trial Balance

Answer: (B)

The Balance Sheet is the financial statement that reveals the equity or capital in a business. It provides a snapshot of the company’s financial position at a specific point in time, displaying assets, liabilities, and equity. Equity, often referred to as net assets, represents the owner’s interest in the business after all liabilities have been deducted from assets.

The Balance Sheet follows the fundamental equation: Assets = Liabilities + Equity. This equation illustrates that the total assets owned by the business are financed either through debts (liabilities) or through the owner's capital (equity).

In contrast, the Income Statement focuses on revenues and expenses over a period of time, showing the company's profitability, but does not directly address how much equity the owners have in the business. The Statement of Cash Flows provides insights into cash inflows and outflows, but it does not break down capital or equity. The Trial Balance is an internal report that lists all the accounts in a ledger and their balances, serving as a tool to verify that debits equal credits, but it is not a financial statement in itself that presents equity.

Thus, the Balance Sheet is the appropriate financial statement for determining the equity or capital in a business.