The nature of equity

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

Of the five financial statement elements, equity is the most mercurial. In part, because it's a function of recognised assets less recognised liabilities, simply expressed in this form of the accounting equation. Assets – Liabilities = Equity (net assets) It’s this residual aspect of equity that makes balance sheets balance. They balance because equity is… Continue reading The nature of equity