Accounting Fundamentals Certification (AFC) Practice Test

Micha Monroe, Capital is classified as an owner’s equity account because it represents the owner’s claim on the assets of the business after all liabilities have been deducted. This account reflects the investment made by Micha Monroe into the business and any retained earnings that are reinvested in the company rather than distributed as dividends.

Owner's equity accounts typically encompass various elements, such as capital contributions, retained earnings, and drawings, which illustrate the owner's stake and financial interests in the company. This classification is fundamental within the accounting equation: Assets = Liabilities + Owner's Equity, where the capital account directly contributes to the overall equity of the business.

In contrast, asset accounts represent resources owned by the business, revenue accounts track income generated, and expense accounts record costs incurred during operations. Each of these account types serves a distinct purpose but does not embody the owner’s investment in the business, thus reinforcing the classification of Micha Monroe, Capital as owner’s equity.