Equity
Definition
Equity is what is left for the owner after subtracting liabilities from assets. It includes owner contributions, retained earnings, and profit or loss.
Example
A business has $15,900 in assets and $7,100 in liabilities. Equity is $15,900 − $7,100 = $8,800. This is the owner's stake in the business.
Why It Matters
Equity shows the owner's stake in the business. Profit increases equity, losses decrease it, and owner contributions or draws change it directly.