![]() how much of a company someone owns, in the form of shares. The type of equity that most people are familiar with is “stock”-i.e. The equity equation (sometimes called the “assets and liabilities equation”) is as follows: ![]() What’s left over: Assets minus liabilities ![]() The difference between assets, liabilities, and equity In a corporation, equity is shareholders’ equity. Put another way: when you take all of your assets and subtract all of your liabilities, you get equity.įor a sole proprietorship or partnership, equity is usually called “owners equity” on the balance sheet. For a small business owner, equity is the net worth of your business. That’s what looking at your equity tells you: how much value is left over once you’ve totalled up everything valuable that you have, and subtracted everything you owe to your creditors. Once you’ve figured out how much you have and how much you owe, it’s natural to ask one more question: Non-current liabilities: long-term debt that ranges beyond 12 months.Ĭombine them, and you get your total liabilities.Current liabilities: debts you owe within the next 12 months.Salaries and wages payable: what you’ve agreed to pay your employees in the future, but haven’t paid out yet.Īgain, there are two main kinds of liabilities.Bank loans: the principal you owe investors.Accounts payable: payments you owe your suppliers.If you’ve promised to pay someone in the future, and haven’t paid them yet, that’s a liability. When you look at your accounting software or spreadsheets and look at your liabilities, you’re asking: Your liabilities are any debts your company has, whether it’s bank loans, mortgages, unpaid bills, IOUs, or any other sum of money that you owe someone else. Fixed assets: Things like land, trademarks, and the value of your “brand.”.Current assets: cash and anything that can be converted into cash within a year (like inventory, for example).Property and equipment: any buildings or tools that you need to operate your business.Īssets are generally divided into two categories:.Inventory: any goods you have in stock that you intend to sell.Cash: the money you have in your business bank account.Accounts receivable: any payments that your clients and customers owe you.
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