Equity
Equity is the residual interest in assets after deducting liabilities. It represents owners’ interest in the entity’s net assets rather than a separate pool of cash. For a company, equity commonly includes share capital, share premium, retained earnings and other reserves. Owner contributions and distributions change equity without being income or expenses.
Worked example
If assets are $150,000 and liabilities $90,000, equity is $60,000. A $10,000 owner contribution increases both assets and equity.
Common mistake
A reserve within equity does not usually represent cash put aside in a bank account; equity can be invested in many kinds of asset.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| ACCA | SBR | Direct | Official assessment-window verification pending |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |