Is Equity and Capital the Same?

by Sindhu
(Klang, Selangor, Malaysia)

Is equity and capital the same? Q: Is equity and capital the same ?

No, they are not.

Equity (or owner's 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.

Hope that helps clarify the difference between equity and capital.

- Michael Celender
Founder of Accounting Basics for Students

Comments for Is Equity and Capital the Same?

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by: Anonymous

Thank you so much. It's a such a clear and simplified explanation.

Perfect explanation!!
by: Anonymous

Well worded, great explanation! This helped SO MUCH

You're very welcome!

Michael Celender
Founder of

Helped me understand more
by: Anonymous

Though this did give me a better understanding of equity it did not give me a clear enough understanding of Capital.

by: Anonymous

LOL! I teach this subject and you have explained this area better than I ever had. Good Job.

Wow, thanks so much for your kind words.

Michael Celender

by: Sajed khan

Good job sir. Really good info, thanks.

by: Anonymous

I understood although it was somehow difficult to classify their real meaning.

Good answer
by: Anonymous

Simple and clear - well written!


by: Anonymous

Thanks! Your answer was really helpful.

by: mustafa

yaah this is great information that i needed.

thank you very much for your kind and honest information . wish you proceed like this.

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