Equity

Definition

The residual interest in the assets of the entity after deducting all its liabilities.

$$\text{Equity} = \text{Assets} - \text{Liabilities}$$

• Equity is dependent on the definitions and measurement of assets and liabilities.
• Equity can also be thought of as owner’s equity (OE): the owner’s investment in the business.

Examples

• Capital
• Drawings (reduce equity)

Debit and Credit

Increased by a credit, decreased by a debit. Normal balance: credit. See Debit and Credit.

• Drawings reduce equity, so an increase in drawings is recorded as a debit.