What Is Equity on Your Balance Sheet?
Question: What is equity that shows on my balance sheet?
Answer: In the basic accounting formula, equity equals assets minus liabilities. Assets are what you own, such as your bank account and accounts receivables. Liabilities are what you owe, such as accounts payables and credit card debt. Equity is the difference, or what would be left over if you paid off all your liabilities from your assets. You could say that it is the part of the business that is yours, although it is more complicated than that.
The simplest and most relatable example I can think of is your home. If you own a house that is worth $500,000 (asset) and you have a mortgage of $300,000 (liability), your equity or the value of your outright ownership is $500,000 minus $300,000, or equity of $200,000.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.