{"id":2778,"date":"2021-07-14T10:37:33","date_gmt":"2021-07-14T15:37:33","guid":{"rendered":"https:\/\/finallylearn.com\/?p=2778"},"modified":"2023-08-19T14:25:11","modified_gmt":"2023-08-19T19:25:11","slug":"equity","status":"publish","type":"post","link":"https:\/\/finallylearn.com\/equity\/","title":{"rendered":"Equity"},"content":{"rendered":"\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p class=\"has-text-align-center\"><strong>Equity is owners&#8217; investment in a company. Stockholders&#8217; equity equals assets minus liabilities and it appears on the balance sheet.<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69ef86ec8334c\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69ef86ec8334c\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/finallylearn.com\/equity\/#What-is-Equity\" >What is Equity?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/finallylearn.com\/equity\/#Equity-on-the-Balance-Sheet\" >Equity on the Balance Sheet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/finallylearn.com\/equity\/#Stock\" >Stock<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/finallylearn.com\/equity\/#Retained-Earnings\" >Retained Earnings<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/finallylearn.com\/equity\/#Comprehensive-Income\" >Comprehensive Income<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/finallylearn.com\/equity\/#Example-Apple\" >Example: Apple<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/finallylearn.com\/equity\/#Equity-on-the-Accounting-Equation\" >Equity on the Accounting Equation<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-is-Equity\"><\/span>What is Equity?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Equity appears on a company&#8217;s balance sheet. As equity increases, the value of the owners&#8217; investment increases. <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"281\" src=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/equity-formula-1024x281.webp\" alt=\"equity formula\" class=\"wp-image-3344\" srcset=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/equity-formula-1024x281.webp 1024w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/equity-formula-300x82.webp 300w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/equity-formula-768x211.webp 768w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/equity-formula.webp 1158w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure><\/div>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p>There are several alternate names for equity:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>stockholders&#8217; equity<\/li><li>shareholders&#8217; equity<\/li><li>owners&#8217; equity<\/li><li>owners&#8217; capital<\/li><li>net worth <\/li><\/ul>\n\n\n\n<p>Equity is one of the five types of accounts in the accounting system. <\/p>\n\n\n\n<p>In accounting, the five types of accounts are:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><a href=\"https:\/\/finallylearn.com\/asset\/\">assets<\/a>: resources owned by a business; what the company <strong>owns<\/strong><\/li>\n\n\n\n<li><a href=\"https:\/\/finallylearn.com\/liability\/\">liabilities<\/a>: debts of the company; what the company <strong>owes<\/strong><\/li>\n\n\n\n<li><a href=\"https:\/\/finallylearn.com\/equity\/\">equity<\/a>: claim on the assets by the owners; calculated as equity = assets &#8211; liabilities; equity is the net worth of the company<\/li>\n\n\n\n<li><a href=\"https:\/\/finallylearn.com\/revenue\/\">revenues<\/a>: when a business receives assets from selling products and services<\/li>\n\n\n\n<li><a href=\"https:\/\/finallylearn.com\/expense\/\">expenses<\/a>: when a business uses or consumes assets to create revenues<\/li>\n<\/ol>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Equity-on-the-Balance-Sheet\"><\/span>Equity on the Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are usually three categories of equity on the balance sheet:<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>Stock<\/li><li>Retained Earnings<\/li><li>Comprehensive Income<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Stock\"><\/span>Stock<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Corporations issued common stock to raise capital to grow the business. The common stock shows equity in the company. Common stock represents paid-in capital to the company. This is the money that investors have invested into the company.<\/p>\n\n\n\n<p>All corporations have common stock. Some companies issue a special class called preferred stock. Preferred stock is included in stockholders&#8217; equity.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Retained-Earnings\"><\/span>Retained Earnings<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A successful business earns a net profit. The company may pay some of these earnings as dividends to stockholders. The profits that remain are added to the company&#8217;s retained earnings. Retained earnings are the net income minus dividends.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"278\" src=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/retained-earnings-definition-1024x278.webp\" alt=\"retained earnings definition\" class=\"wp-image-3340\" srcset=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/retained-earnings-definition-1024x278.webp 1024w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/retained-earnings-definition-300x81.webp 300w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/retained-earnings-definition-768x208.webp 768w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/retained-earnings-definition.webp 1157w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure><\/div>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p>So, assume a company earns net income of $15,000 and pays dividends of $3,000. The retained earnings increases by $12,000.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Comprehensive-Income\"><\/span>Comprehensive Income<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Comprehensive income is income that does not appear on the income statement. It is from non-owner transactions. For example, assume a company purchased a stock for $100,000 and it has a market value of $133,000. The company has an unrealized holding gain. The comprehensive income is $33,000 because of the unrealized gain.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Example-Apple\"><\/span>Example: Apple <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here is the equity section of the Apple 2020 balance sheet. Apple lists three sections of equity. Common stock is the first. Then, Apple lists retained earnings and comprehensive income.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"600\" height=\"130\" src=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/apple-equity-2020.jpg\" alt=\"Apple stockholders' equity 2020\" class=\"wp-image-2785\" srcset=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/apple-equity-2020.jpg 600w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/apple-equity-2020-300x65.jpg 300w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Equity-on-the-Accounting-Equation\"><\/span>Equity on the Accounting Equation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The accounting equation is a basic concept in accounting. The accounting equation is Assets = Liabilities + Equity. This is always true. The accounting equation must always balance. The accounting equation is shown on the balance sheet. <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"278\" src=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/accounting-equation-1024x278.webp\" alt=\"accounting equation\" class=\"wp-image-3342\" srcset=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/accounting-equation-1024x278.webp 1024w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/accounting-equation-300x81.webp 300w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/accounting-equation-768x208.webp 768w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/07\/accounting-equation.webp 1157w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure><\/div>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p>In 2020, Apple had total assets of $323.8 B and total liabilities of $258.5 B. So, using the accounting equation, the total equity was $65.3 B.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"376\" src=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/apple-2020-accounting-equation-1024x376.webp\" alt=\"Apple 2020 accounting equation\" class=\"wp-image-3343\" srcset=\"https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/apple-2020-accounting-equation-1024x376.webp 1024w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/apple-2020-accounting-equation-300x110.webp 300w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/apple-2020-accounting-equation-768x282.webp 768w, https:\/\/finallylearn.com\/wp-content\/uploads\/2021\/10\/apple-2020-accounting-equation.webp 1233w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure><\/div>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p>For more financial terms, see the <a href=\"https:\/\/finallylearn.com\/financial-terms\/\">Financial Terms Dictionary<\/a>.<\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n","protected":false},"excerpt":{"rendered":"<p>Equity is owners&#8217; investment in a company. Stockholders&#8217; equity equals assets minus liabilities and it appears on the balance sheet. What is Equity? Equity appears on a company&#8217;s balance sheet. As equity increases, the value of the owners&#8217; investment increases. There are several alternate names for equity: stockholders&#8217; equity shareholders&#8217; equity owners&#8217; equity owners&#8217; capital [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":2783,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[88],"tags":[],"class_list":["post-2778","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting"],"blocksy_meta":[],"brizy_media":[],"_links":{"self":[{"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/posts\/2778","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/comments?post=2778"}],"version-history":[{"count":1,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/posts\/2778\/revisions"}],"predecessor-version":[{"id":4352,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/posts\/2778\/revisions\/4352"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/media\/2783"}],"wp:attachment":[{"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/media?parent=2778"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/categories?post=2778"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finallylearn.com\/wp-json\/wp\/v2\/tags?post=2778"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}