Equity in terms of the Balance Sheet

What is Equity?

• Equity - also called Owner’s Equity, Shareholders’ Equity, or Net Assets - represents the owners’ residual interest in the company after liabilities are deducted from assets.

Formula:

Equity = Assets - Liabilities

• Equity shows who owns the business and how much of the business value belongs to the owners.

• On the balance sheet equity appears above liabilities

Major Components of Equity

1. Share capital/ Contributed Capital (Money invested into the business by owners or shareholders)

2. Additional Paid-In Capital (APIC) - (Amount shareholders paid above the par value of shares)

3. Treasury Stock (Contra-Equity) - (Shares the company repurchased from shareholders)

4. Retained Earnings (Accumulated profits the company keeps rather than distributing as dividends to shareholders)

5. Accumulated Other Comprehensive Income (AOCI) - (Unrealised gains/losses not included in net income)

6. Reserves ( Reserves are portions of equity set aside for specific purposes)

7. Non-Controlling Interest (Only in Consolidated FS) - (Equity in subsidiaries not owned by the Parent Company)

8. Drawings or Withdrawals (Contra-Equity for Sole Proprietors/Partners) - (Owner withdrawals reduce equity)

Full Consolidated List of All Equity Accounts in Accounting

• For Corporations

• For Partnerships

• For Sole Proprietorships/Traders

What Are examples of Equity For Corporations?

• Common stock/ Ordinary shares

• Preferred Stock

• Share Premium (APIC)

• Retained earnings

• Capital Reserves

• Earnings Reserves

• Revaluation Surplus

• Accumulated other comprehensive income (AOCI)

• Treasury Stock (reduces equity)

• Revaluation Surplus

• Stock option reserves

• Non-Controlling interests

What are examples of Equity For Partnerships?

• Partner Capital Accounts

• Partner Profit-Sharing Allocations

• Partner Drawing Accounts

What are examples of Equity for Sole Proprietorships/Traders?

• Owners’ Capital

• Owners’ Drawings

• Retained Earnings (Sometimes combined into capital account)

Summary of Equity in Accounting (Specifically in the Balance Sheet)

• Equity represents the owners’ claim on the company’s assets after paying all liabilities.

It includes;

• Contributed capital (Share capital / owner investment)

• Additional paid-in capital

• Retained earnings

• Reserves

• AOCI

• Treasury Stock (Reduces Equity)

• Non-Controlling Interest (For Consolidated Entities)

Equity is a key measure of a company’s financial health and value.