Ownership equity
Accountancy
Key concepts
Accountant
Bookkeeping
Trial balance
General ledger
Debits and credits
Cost of goods sold
Double-entry system
Standard practices
Cash and accrual basis
GAAP / IFRS
Financial statements
Balance sheet
Income statement
Cash flow statement
Ownership equity
Retained earnings
Auditing
Financial audit
GAAS
Internal audit
Sarbanes-Oxley Act
Big Four auditors
Fields of accounting
Cost • Financial • Forensic
Fund • Management • Tax
In accounting terms, after all liabilities are
paid, ownership equity is the remaining in-
terest in assets. If valuations placed on assets
do not exceed liabilities, negative equity
exists.
Shareholders’ equity (or stockholders’
equity, shareholders’ funds, sharehold-
ers’ capital employed) is this interest in re-
maining assets, spread among individual
shareholders of common or preferred stock.
At the start of a business, owners put
some funding into the business to finance as-
sets. Businesses can be considered to be, for
accounting purposes, sums of liabilities and
assets; this is the accounting equation. After
liabilities have been accounted for, the posit-
ive remainder is deemed the owner’s interest
in the business.
This definition is helpful when a business
is not paying its bills and gets liquidated,
wound up, put into receivership or bank-
ruptcy. Then, a series of creditors, ranked in
priority sequence, have the first claim on the
proceeds (e.g. asset sales), and ownership
equity is the last or residual claim against as-
sets, paid only after all other creditors are
paid. In such a case, creditors may not get
enough money to pay their bills, and nothing
is left over to reimburse owners’ equity. Thus
owners’ equity is reduced to zero. Ownership
equity is also known as risk capital, liable
capital and equity.
Accounting
In financial accounting, it is the owners’ in-
terest on the assets of the enterprise after
deducting all its liabilities.[1] It appears on
the balance sheet, one of four financial
statements.
Ownership equity includes both tangi