The remaining value (residual amount) of owners’ interest in an entity, after all its liabilities have been deducted from its total assets. In other words, it reflects ownership of assets that may have external sources of capital (debts or other liabilities) attached thereto.
In calculation, and as can be inferred from the accounting equation, owners’ equity is reached at by subtracting liabilities from the value of the assets at a given point in time (e.g., date of financial statements):
Equity = total assets – total liabilities
Owners’ equity is also referred to as net worth, equity, net assets, or shareholders’ equity. However, owners’ equity is used for privately-held companies, while shareholders’ equity fits in the context of corporations.
