Alright, let's work through the question to find the correct answer to how net worth is calculated.
Net worth is a fundamental financial metric that represents the value of an individual or business's assets minus their liabilities.
Here's a step-by-step breakdown:
1. Identify Assets: First, we need to know the total value of assets. Assets can include cash, real estate, investments, and other property or valuables an individual or business owns.
2. Identify Liabilities: Next, we identify the total liabilities. Liabilities represent any debts or obligations, such as loans, credit card debts, mortgages, bills, etc.
3. Calculate Net Worth: To find the net worth, we subtract the total liabilities from the total assets.
Mathematically, it can be represented as:
[tex]\[ \text{Net Worth} = \text{Total Assets} - \text{Total Liabilities} \][/tex]
Now, let's consider each of the multiple-choice options given:
- OA. Subtracting gross income from net income.
This isn't correct because income (gross or net) is not directly part of the assets or liabilities calculation required for net worth.
- OB. Adding liabilities to the total value of assets.
This isn't correct either, as adding liabilities to assets wouldn't leave us with a net value. It would actually increase the total value, but net worth involves reducing the value of assets by the value of liabilities.
- OC. Subtracting liabilities from the total value of assets.
This is correct, as it directly aligns with the formula for calculating net worth:
[tex]\[ \text{Net Worth} = \text{Total Assets} - \text{Total Liabilities} \][/tex]
This step exactly shows how net worth is determined.
- OD. Adding gross income to net income.
This isn't correct, as income is related to revenue and profit, not to the total value of assets or liabilities necessary for determining net worth.
Based on this analysis, the correct answer is:
OC. Subtracting liabilities from the total value of assets.
