Owners equity is the portion of a companys value held by the sole proprietor, partners, or shareholders with a claim in the business. It is essentially the owners rights to the assets of the business, and it is whats left over for the owner after subtracting all the liabilities from the assets. In simple terms, owners equity is defined as the amount of money invested by the owner in the business minus any money taken out by the owner of the business. It is an important measure to help owners understand the value of their stake in their business.
Owners equity can apply to a single asset, such as a car or house, or to an entire business). It is measured for accounting purposes by subtracting liabilities from the value of the assets owned). The liabilities represent the amount owed by the owner to lenders, creditors, investors, and other individuals or institutions who contributed to the purchase of the asset.
Owners equity includes money invested by the owner of the business, plus profits of the business since its inception, minus money taken out of the business by the owner, and minus money owed to others. If the business is structured as a corporation, equity may also include accounts like retained earnings, common stock, preferred stock, treasury stock, and additional paid-in capital.
In summary, owners equity is the portion of a companys value that belongs to the owner or owners, and it is calculated by subtracting liabilities from the total value of the assets owned. It is an important measure to help owners understand the value of their stake in their business.
