Question

If a business has negative net worth what does it signify ___________.

• A. total assets are more than total liabilities
• B. accumulated losses are more than owners capital
• C. huge cash logged up in idle assets
• D. outside liabilities exceeds owners capital

Answer 1

Answer: (B)

accumulated losses are more than owners capital

Profits and losses are part of owners equity. Whenever business earns any profits that all will be added to owners equity. Similarly, if losses are generated by the business, that will also be part of owners capital.

Owners Equity=Capital+Reserves & Surplus

Owners Equity=Net Worth

Reserves & Surplus= Profit & Loss Account accumulated balances.

Hence, if Net Worth is showing negative, that signifies that accumulated business losses are more than the owners capital