Equity is the last piece of the Accounting Equation, which is Assets = Liabilities + Equity. If you’ve read my previous blog posts, you already know what Assets and Liabilities are, but what’s Equity? There are several definitions depending on what type of conversation you’re having (investing, society in general, business, etc.). For business owners, when boiled down, it’s what’s left over once you subtract the Liabilities from the Assets. You can use Equity to determine the value of a company, which will likely be necessary if you are planning to sell your business or if you need to take out a loan.
What affects Equity? (Increases/Decreases)
-Owner Investments/Distributions
-Revenue/Expenses
-Assets/Liabilities