How is net worth defined?

How is net worth defined?

• A. Total assets minus total liabilities
• B. Total revenue minus total expenses
• C. All cash and cash equivalents
• D. Total assets

Answer: (A)

Net worth is the measure of what you own that isn’t owed to others. It’s calculated by taking all assets and subtracting all liabilities. In other words, it shows the financial piece that would remain if you converted everything you own into cash and paid off every debt you owe. Think of it like this: if you add up all assets—cash, investments, real estate, and other valuable items—and then subtract debts like loans and credit card balances, the remainder is your net worth. For example, if total assets are 500,000 and total liabilities are 350,000, net worth is 150,000. If liabilities exceed assets, net worth would be negative. This differs from net income, which is revenue minus expenses and reflects performance over a period rather than a snapshot of overall financial position. It also isn’t just total assets, since liabilities must be taken into account to reflect what you truly own free and clear.

Net worth is the measure of what you own that isn’t owed to others. It’s calculated by taking all assets and subtracting all liabilities. In other words, it shows the financial piece that would remain if you converted everything you own into cash and paid off every debt you owe.

Think of it like this: if you add up all assets—cash, investments, real estate, and other valuable items—and then subtract debts like loans and credit card balances, the remainder is your net worth. For example, if total assets are 500,000 and total liabilities are 350,000, net worth is 150,000. If liabilities exceed assets, net worth would be negative.

This differs from net income, which is revenue minus expenses and reflects performance over a period rather than a snapshot of overall financial position. It also isn’t just total assets, since liabilities must be taken into account to reflect what you truly own free and clear.