Certified Materials and Resource Professional Practice

Owner's equity represents the residual interest in the assets of an entity after deducting liabilities. In other words, it is calculated by taking the total assets and subtracting the total liabilities.

When calculating owner's equity, cash assets, fixed assets, and liabilities are all relevant. Cash assets contribute to the total assets, while fixed assets like property and equipment also form part of the asset base. Liabilities are critical because they are deducted to arrive at the owner's equity figure.

Current liabilities, on the other hand, are a classification of liabilities and do not directly contribute to the calculation of owner's equity. Instead, they are included in the liabilities that get subtracted from total assets. Thus, when identifying which component is NOT included in the calculation of owner's equity, current liabilities fit this definition as they represent amounts owed that impact the net value attributed to the owners but are not part of the equity calculation itself.