Is Equity and Capital the Same?
(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.
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.
See below for more questions and comments as well as related tutorials.
- Michael Celender
Founder of Accounting Basics for Students
Related Questions & Tutorials:
- What is Owners Equity?
- The Statement of Owners Equity
- Or see more Basic Accounting Questions and Answers
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