Accounting for Owners' Equity
Equity is the amount of ownership into a firm. One of the basic ideas in accounting is the account equation. The accounting equation states assets equals liabilities plus owners' equity, which rephrased states owners' equity equals assets minus liabilities. Owners' equity is important because it shows how much is invested into the firm through ownership, not debt.
Instructions
1. Calculate the amount of assets a company owns. Assets are anything with a future benefit for the firm. Assets include, but are not limited to, property, plant and equipment, accounts receivable and cash. For example a firm has $1,000,000 in assets.
2. Calculate the amount of liabilities a company owes. A liability is when the firm must pay another organization or owes a responsibility to another in the future. Examples of liabilities are accounts payable, notes payable and accrued expenses For example, a firm owes $400,000 in liabilities.
3. Subtract liabilities from assets to determine owners' equity. In the example, $1,000,000 of assets minus $400,000 of liabilities equals $600,000 of owners' equity.
