If a business becomes insolvent this means that

If a business becomes insolvent this means that

• A. Total Assets Exceed Total Liabilities
• B. Total Liabilities Exceed Total Assets
• C. Equity Is Zero
• D. Revenue Is Negative

Answer: (B)

Insolvency happens when a business owes more than it owns—liabilities exceed assets. On the balance sheet, that means assets minus liabilities would be negative, so equity becomes negative as well. This is different from simply having negative revenue, which is a loss on the income statement and doesn’t by itself show the ability to meet debts. Zero equity would occur if assets and liabilities are equal, which is break-even, not insolvent. So the scenario described is when liabilities exceed assets.

Insolvency happens when a business owes more than it owns—liabilities exceed assets. On the balance sheet, that means assets minus liabilities would be negative, so equity becomes negative as well. This is different from simply having negative revenue, which is a loss on the income statement and doesn’t by itself show the ability to meet debts. Zero equity would occur if assets and liabilities are equal, which is break-even, not insolvent. So the scenario described is when liabilities exceed assets.