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Ajay Mady

Where to find equity in accounting?

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1 Answer

  1. This answer was edited.

    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 at 31st March, yyyy

    PARTICULARSNOTE NO.AMOUNT
    EQUITY AND LIABILITIES
    Shareholder’s Fund
    Share capital1,00,000
    Reserves & Surplus40,000
    Non-Current Liabilities
    Long- Term Borrowings14,000
    Current Liabilities
    Short term borrowings3,000
    Trade Payables6,000
    Short Term provision3,000
    Total1,66,000
    ASSETS
    Non-Current Assets
    Fixed assets1,10,000
    Current assets
    Inventories20,000
    Trade Receivables30,000
    Cash and bank balance6,000
    Total1,66,000

    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 

    Hope this helps.

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