What is equity?

Equity is residual interest in the assets of an entity after deducting all its liabilities. equity represent the amount of resources the owners of the entity have invested in the entity. The return the owners obtain from equity is called dividends. The owners holding equity are called ordinary shareholders. They are real owners of the entity since they own remaining portion of the entity and they take the risk since their return depend on the performance of the entity i.e their return vary according to performance of the entity.

Calculation of equity can be done by using accounting equation shown below

Assets – Liabilities = Equity

Example of equity include ordinary share capital, share premium, retained earning and revaluation surplus.

2 thoughts on “What is equity?”

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