What is Equity - Leigh Barker Accountant

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WHAT IS EQUITY
LEIGH BARKER
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Introduction

• Equity is basically the difference between the
  value of all assets owned and the cost of any
  associated liabilities. Within the context of
  accounting, while the term equity is applied in
  numerous ways it generally refers to an ownership
  interest in a business.

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Equity Assets Liabilities

• Equity represents what the business owes to its
  owners which is a reflection of the capital
  remaining in a business after all the assets of
  the entity are used to pay off the liabilities of
  the business.

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great significance to a business owner

• Equity is of great significance to a business
  owner as it represents that portion of the total
  assets of the company that the owner owns which
  may also be referred to as net worth. For
  example, if an owner purchased cafe worth
  500,000 with a 400,000 loan and 100,000 in
  cash then the owner has acquired an asset of
  500,000 but only has 100,000 of equity.

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 Value of Equity 

• Equity will increase as the value of assets
  increase. These increase may be derived from such
  items as the value of the property owned, income
  streams, shares, client base plus any other asset
  that can increase in value.

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two components

• In a balance sheet equity will generally comprise
  two components being
• capital received from the sale of company shares
• OR
• (2) retained earnings which are profits not
  distributed to owners or shareholders

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Leigh Barker Accountant

• Prepared by Leigh Barker Accountant at MWC Group,
  Tangible Assets, Portfolio Finance, Gordon and
  West Pennant Hills. Note that all content of this
  blog is general in nature and anyone intending to
  apply the information to practical circumstances
  should seek professional advice to independently
  verify their interpretation and the informations
  applicability to their particular circumstance.

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