Which of the following accounts is classified as an owner's equity account?

• A. Accounts Payable
• B. Retained Earnings
• C. Inventory
• D. Prepaid Expenses

Answer: (B)

Verified step by step guidance

1. Understand the concept of owner's equity: Owner's equity represents the residual interest in the assets of the entity after deducting liabilities. It includes accounts such as capital, retained earnings, and other equity accounts.
2. Analyze each option provided in the problem: Accounts Payable, Inventory, Prepaid Expenses, and Retained Earnings.
3. Determine the classification of each account: Accounts Payable is a liability account, Inventory is an asset account, Prepaid Expenses is also an asset account, and Retained Earnings is an owner's equity account.
4. Focus on Retained Earnings: Retained Earnings represent the accumulated profits of the company that have not been distributed to shareholders as dividends. This account is part of owner's equity.
5. Conclude that Retained Earnings is the correct answer because it is classified as an owner's equity account, while the other options belong to different categories (liabilities or assets).