Owner's equity
Owner's equity (or, simply, equity) is ownership expressed in a difference between how much the business owners have contributed to the business from personal funds (Owner's Capital) and how much these owners have withdrawn from the business for personal use (Owner's Withdrawals). In other words, owner's equity is rights of financial claims to the assets of an organization. In the basic accounting equation, assets minus liabilities). In bookkeeping (and, consequently, accounting), this difference is found on the balance sheet: Owner's equity = Assets minus Liabilities. In finance, owner's equity can be defined as ownership in any asset after all debts associated with that asset are paid off. In terms of startup, it is commonly used to describe a business giving up a percentage of ownership in exchange for cash. An equity investor is then entitled to share in any future profits and/or sale of business assets (after debts are paid off).
Definitions
According to College Accounting: A Practical Approach by Slater (13th edition),
- Owner's equity. Rights of financial claims to the assets of an organization. In the basic accounting equation, assets minus liabilities).
According to Principles of Economics by Timothy Taylor (3rd edition),
- Equity. The monetary value a homeowner would have after selling the house and repaying any outstanding bank loans used to buy the house.
Related concepts
- Bookkeeping. Recording, filing, and retrieving of financial data, as well as producing those financial reports that are required by laws.
