📚Equity is the residual value of an entity's assets after deducting all its liabilities.
💰Equity represents the net funds invested into a business by its owners.
📈Equity is made up of capital contributions and retained earnings.
💼Capital contributions are the funds owners invest into the business, while retained earnings are accumulated profits held for future use.
💸Withdrawals, such as drawings or dividends, decrease equity as they reduce the owner's claim on net assets.
What is equity?
—Equity is the residual value of an entity's assets after deducting all its liabilities. It represents the net assets of a business.
How is equity calculated?
—Equity is calculated by subtracting liabilities from assets. It can also be calculated as the sum of capital contributions and retained earnings.
What are capital contributions?
—Capital contributions are the funds owners invest into the business. They increase equity and provide the initial capital needed to start or grow the business.
What are retained earnings?
—Retained earnings are accumulated profits held by the business for future use. They represent the portion of profits that have not been distributed to owners as dividends.
How do withdrawals affect equity?
—Withdrawals, such as drawings or dividends, decrease equity as they reduce the owner's claim on net assets. They represent the distribution of accumulated profits to the owners.
00:09Equity is the third pillar of the accounting equation, which states that assets are equal to liabilities plus equity.
01:48Equity is the residual value of an entity's assets after deducting all its liabilities.
02:42Equity represents the net funds invested into a business by its owners.
06:17Equity is made up of capital contributions and retained earnings.
08:39Withdrawals, such as drawings or dividends, decrease equity as they reduce the owner's claim on net assets.
