Equity Definition Accounting means the amount invested by the owners. Equity is own capital to which the business is exists. It may be in the form of common or preferred stock.
Equity Definition and Definition of equity
Owner’s Equity Definition in Accounting represents owner’s funds employed in a business. It is also knows as owners equity or net worth. Definition of equity is the original fund with which the businessman entered in a business. Equity is claiming against the assets the business.
In other words, the amount of capital is outstanding during a period with profits retained in the business.
Generally the equity shares are to be paid off only upon liquidation. So the risk is least. Equity is used in accounting in several ways. Often the word equity is used when referring to an ownership interest in a business.
Examples include stockholders’ equity, share holders or owner’s equity.
Equity definition in accounting and finance has basic equation in accounting is, Equity = assets – liabilities
In general apart from financial or accounting it has different meaning. It used to specify fairness, justice.
Define Equity in Accounting Terms, To define In layman language, Equity is used to mention interest in an asset. For example if business man is an owner firm has net worth of $10,00,000 and has business loan is $1,00,000 now how much amount is equity? The answer is $9,00,000 of equity in the business firm.
- Equity provides a security to other suppliers of funds.
- It is permanent source of finance for business.
- For equity holders there are no committed payments in case of corporate form entity.
- For equity capital the risk is low because of repayment is only in case of liquidation.
- Equity cost is very high and issuing expenses also high.
- Further issue of equity will reduce the EPS of existing shareholders.
- On the investor point of view, it is riskier due to uncertainty of dividend.
- Repayment of capital is only after payment made to secured loan and preference shareholders.
Definition of equity in different types of words in accounts and their descriptions that comprise the owner’s equity depend on the nature of the entity and may include:
Share capital (common stock)
Reserve and surplus
Equity definition in Accounting has different context, In case of Inc or corporation or Ltd Company for equity the following disclosures are required to be disclosed. It should be shown in the financial statement or annual return. These includes as follows-
- Total numbers of authorized equity capital, issued and fully paid up capital,
- Face value or nominal value of shares,
- Disclosure with respect to outstanding shares at the opening and closing of the period along with reconciliation.
- Details about Treasury shares or stock along with share held by associates and other subsidiaries.
- Details of preference shares, options ( conversion of debenture into equity)
- Disclosing right shares, bonus shares and restrictions of shares if any,
- Shares to be issued or under options or contracts,
- Details of owners’ equity holding in proportion basis,
- Shares register details,
- Shares issued but not fully paid. For more details click here.
Originally posted 2015-02-17 01:03:44.