What does equity mean in accounting?

Equity represents the residual claim on assets after satisfying liabilities. A company can pay for something by either taking out debt (i.e. liabilities) or paying for it with money they own (i.e. equity). Therefore, the equation reflects the principle that all of a company's resources (assets) can be paid in one of those two ways.

How is equity calculated in accounting?

When calculating equity in accounting, the company’s assets are offset by its liabilities. A balance sheet shows the book value of the company’s assets and liabilities. Then it shows equity—what you get when subtracting liabilities from assets. The following formula shows how equity is calculated: or, put another way:

What does equity mean on a balance sheet?

Put another way: when you take all of your assets and subtract all of your liabilities, you get equity. For a sole proprietorship or partnership, equity is usually called “owners equity” on the balance sheet. In a corporation, equity is shareholders’ equity. Category Description Asset