What is equity in accounting?

By Zippia Team - Jan. 31, 2023

Equity in accounting refers to a company's book value, which is the difference between assets and liabilities on a company's balance sheet. This term can also sometimes be referred to as the owner's equity, since it's the value that a company or business has after liabilities have been deducted.

In accounting, equity might also refer to a company's market value, which is calculated by using current share prices, or might also be determined by the value the company investors have given it.

When all of a company's assets become liquid, its debts are paid, and shareholder equity is the amount of money that remains and can then be distributed amongst shareholders.

The accounting formula to get a book value of equity is very simple:

Equity = Assets - Liabilities

Many accountants use this formula when preparing balance sheets for companies, as well as other financial statements.

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