Equity

Equity in accounting is the owner’s claim on the business. It is what is left of the assets after all liabilities are deducted, and on the balance sheet (statement of financial position) it shows how the business is financed by its owners.

For a company, equity is the shareholders’ funds (such as share capital and reserves). For a sole trader or partnership, it is the capital account, adjusted by profits and losses, money introduced, and drawings. Equity increases with profit or new capital, and decreases with losses and distributions (like dividends or drawings).

Typical components of equity:

• Share capital (money paid in by shareholders for shares).
• Retained earnings (profits kept in the business).
• Reserves (such as share premium or revaluation reserve).
• Capital introduced and drawings (for sole traders and partnerships).
• Treasury shares or similar deductions that reduce total equity.