Equity is one of the five financial statement elements. It causes considerable confusion for students because so often it’s described from the perspective of the investor—that is an an investment asset— rather than from the point of view of the entity.

It is best described as a residual obligation of the entity. These resources explore this idea in more detail.

Students protesting with a banner "Planet over profit"

Students need to understand that accounting is political

You may not think that accounting is political or that accountants should meddle in economics and politics. After all, their job is to report objectively on the performance and condition of corporations. Faithful representation, as we know, requires neutrality. Corporations, however, are social inventions and financial reports are never passive…Read more

Read more
A pictorial presentation of a balance sheet showing assets of £50,000, liabilities of £30,000 and equity of £20,000.

The nature of equity

Of the five financial statement elements, equity is the most mercurial. In part, because it’s total amount is measured as the total of recognised assets less the total of recognised liabilities, expressed in this form of the accounting equation. Assets – Liabilities = Equity (net assets) Measuring total equity as…Read more

Read more