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What is Owners Equity?

Owners Equity

Owners Equity

Owners Equity refers to the owners ownership i.e. the owners share in the business. Owners Equity may also mean the amount of assets owned by the owners of a business. The formula for calculating Owner’s Equity is as follows:

Owner’s Equity = Assets – Liabilities

For instance, if the value of the assets of a business is INR 4,500,000 and the business liabilities are INR 1,500,000 then the owner’s equity is INR (4,500,000 – 1,500,000) i.e. INR 3,000,000.

Balance Sheet

All these values are shown in the balance sheet of the company. Liabilities and Owner’s Equity are shown on the right while the assets are shown on the left side.Owner’s equity is one of the three major components of a balance sheet and is demonstrated in the owner’s capital in partnership or sole proprietorship whereas it is shown as retained earnings in a corporation. With an increase in owner’s capital contribution or in profits, the Owner’s Equity increases.

If an owner withdraws an amount from Owner’s Equity, it is considered as a capital gain and the with-drawer is supposed to pay capital gain tax on that amount.

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