What Is Equity Means In Business?


4 Answers

Danielle Joynson Profile
Put simply equity refers to the monetary value of a property or business beyond what is owed on it, such as a mortgage or loan. A good example of this is when somebody purchases a house with a bank loan or mortgage. When you take a mortgage on a property, you make payments each month. At first a good bit of each payment goes towards the interest on the loan. Over time, more and more of the payment is applied toward the principal of the loan which increases the ownership of the property.  If your home was valued at $250,000 and the mortgage remaining is $100,000. Your equity in the home would be $150,000, provided there are no loans or claims against the property. So in brief, equity is the difference between what the property is worth and what you owe on it.
It is possible for negative equity to exist. This usually occurs when the value of something drops below its original price or drops below the amount that has been borrowed to purchase it.  This is often an occurrence in an economy that is entering or has entered recession. High unemployment and falling prices can often trigger negative equity as was seen in The UK between 1991 and 1996 when house prices fell sharply, meaning that many home owners were left owing more in mortgage payments than the property was worth.
It is not just property that can see fluctuating equity values. Vehicles are often subject to negative equity as it is widely accepted that the value of a car drops by 20 per cent as soon as it is driven away from the dealership. If the value is then lower than the amount borrowed to purchase the car then the owner is in negative equity.
usman ali Profile
usman ali answered
1. Stock or any other security should represent an ownership interest.

2. On the balance sheet, the amount of the funds should be contributed by the owners (the stockholders) plus the retained earnings (or losses),also referred to as "shareholder's equity".

3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. Thus, it is the amount, if any, the owner would receive after selling a property and paying off the mortgage.
Iftikhar Ahmad Profile
Iftikhar Ahmad answered
Equity, also known as capital or net worth, is the amount owners have invested in a business. In the equity section of your chart of accounts, you must do three things:
• show the initial investment (Paid-in Capital, Owner's Contributions)
• track withdrawals from this investment (Owner's Draw, Dividend Paid)
• show the combined profit or loss of the business since inception (Retained Earnings)
Equity can also be thought of as the owner's claims against the assets (versus the claims of others, which are liabilities). Equity will always equal what is owned (assets) minus what is owed (liabilities).
In Peachtree, there are three types of equity:
• Equity - Retained Earnings
• Equity - doesn't close
• Equity - closes

Some equity accounts, like Common Stock, are carried forward from year to year. Thus, they are designated Equity/doesn't close. Other equity accounts, like Dividends Paid, are zeroed at year-end, with their amounts moved to the Retained Earnings account. These accounts are designated Equity/closes.

Retained Earnings is the key account. There can be only one Retained Earnings account, but you must have one to roll each year's profit or loss into. Thus, Retained Earnings, together with any Equity/doesn't close accounts, always shows the net worth of the company prior to the current year. All of the Equity/closes accounts track the change to net worth for the current year.

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