The owners’ rights in an entity’s assets after deducting all its liabilities. Residual interest reflects the amount of equity (owners’ equity) in an entity: the claims of existing owners on the assets of the entity after the deduction of its liabilities, as can inferred from the accounting equation (basic accounting equation):
Equity = assets – liabilities
By definition, an equity instrument is a contract or contractual arrangement that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The residual interest in a business entity belongs to the common stockholders (holders of common stock/ ordinary shares).
