Is Equity and Capital the Same?

by Sindhu
(Klang, Selangor, Malaysia)

Q: Are equity and capital the same ?

A: No, they are not.

Equity is the owner's share of the assets of a business (assets can be owned by the owner or owed to external parties - debts).

Capital is the owner's investment of assets in a business.

The owner can also make profits from a business that he/she runs. These profits belong to the owner (they do not belong to anyone else, right?). Therefore, profits from a business are also part of equity.

Profits are kept in accounts called reserves.

Therefore equity consists of capital plus reserves (accumulated profits).

Capital is one sub-category of equity, reserves (accumulated profits) are another.