Accounting 104: When Does Owner's Equity Increase Or Decrease? | Accounting In One Minute

The fundamental accounting equation also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a person or business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.

Assets = Liabilities + Owner's Equity

A firm's total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity represents the amount by which a company is financed through common and preferred shares.

Shareholders' Equity = Total Assets - Total Liabilities

OR

Shareholders' Equity = Share Capital+Retained Earnings - Treasury Shares

Also known as "share capital", "net worth" or "stockholders' equity". Shareholders' equity comes from two main sources. The first and original source is the money that was originally invested in the company, along with any additional investments made thereafter.

In finance, equity is the possession of assets.

In accounting purposes, equity is calculated by subtracting liabilities from an asset's worth. For example, if someone owns a $9,000 car and owes $3,000 on the loan used to buy the car, then the $6,000 difference is equity.

Equity can refer to a single asset, e.g. a car or home, or to a whole company. A business that wants to start or extend its operations will sell its equity to raise cash that does not need to be repaid on a timeline set.

When the liabilities added to an asset outweigh its worth, the disparity is referred to as a deficit, and the asset is considered to be "underwater" or "upside down."

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