Is Equity and Capital the Same?
by Sindhu
(Klang, Selangor, Malaysia)
Q: Is equity and capital the same ?
A: No, they are not.
Equity, also known as 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 - liabilities or debts. See our tutorial on the basic accounting equation for more on this).Capital is the owner's investment of assets into a business.Capital is a subcategory of
owner's equity.But it's not the only subcategory.
![Reserves profits reserves accounting](//www.accounting-basics-for-students.com//images/xMoneybag_ed_200.jpg.pagespeed.ic.-4bBmpVqQ8.jpg)
The owner can also make
profits from a business that he/she runs. These profits belong to the owner (they don't belong to anyone else, right?).
Therefore, profits from a business are also part of owner's equity.
Profits are kept in accounts called
reserves.Therefore owner's equity consists of capital plus reserves (accumulated profits).Capital is one sub-category of equity,
reserves are another.
Hope that helps clarify the difference between equity and capital.
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Founder of Accounting Basics for Students
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