Where to find equity in accounting?

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Equity in accounting refers to the sum of money that is returned or paid to the owners/shareholders at the time of winding up of the company once all of the assets are liquidated and the liabilities are paid off.

It is generally referred to as Shareholder’s equity or Owner’s equity. It can also be calculated with the help of a formula derived from the accounting equation which is as follows:

EQUITY = TOTAL ASSETS – TOTAL LIABILITIES 

Treatment of equity in accounting

Equity is shown in the balance sheet under shareholder’s equity, which is a result of the difference between the total assets and total liabilities of the company. I would like to explain this concept further with the help of an example which is as follows;

Example

The following is the balance sheet of XYZ Ltd. which shows their Equity, Liability, and Assets during the current financial year.

Balance sheet as of 31st March, YYYY

PARTICULARS NOTE NO. AMOUNT
EQUITY AND LIABILITIES
Shareholder’s Fund
Share capital 1,00,000
Reserves & Surplus 40,000
Non-Current Liabilities
Long-Term Borrowings 14,000
Current Liabilities
Short term borrowings 3,000
Trade Payables 6,000
Short Term provision 3,000
Total 1,66,000
ASSETS
Non-Current Assets
Fixed assets 1,10,000
Current assets
Inventories 20,000
Trade Receivables 30,000
Cash and bank balance 6,000
Total 1,66,000

NOTE: As mentioned earlier, equity represents the difference between the total assets and total liabilities which can be easily recognized in the balance sheet given above.

 

Total Assets = 1,66,000

Total Liabilities = 26,000

Equity = Total assets – Total liabilities

= 1,66,000 – 26,000

= 1,40,000