# 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.

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:

### Comments for Is Equity and Capital the Same?

 Very good clarification by: Anonymous Thank you for this simple, short and clear explanation of the concepts behind Equity, Capital and Reserve Funds. I need to look no further !

 Basic Accounting Equation Formula Question by: Laxman In one exam the examiner asked what is the correct accounting equation. They gave the following options:1) ASSETS = LIABILITIES + EQUITY2) ASSETS = LIABILITIES + CAPITALWhich is the correct answer? I have much confusion, kindly clarify this.Hi there, the correct answer is number 1. As you can see from my explanation above, owner's equity and capital is not the exact same thing.Capital is actually a subcategory of owner's equity.The overall accounting equation is:ASSETS = OWNER'S EQUITY + LIABILITIESSee the following lessons for more in-depth explanations:- The Basic Accounting Equation or Formula- What is Owner's Equity?- The Accounting Equation and Financial PositionAlso, try The Basic Accounting Test, where you can test yourself on the basic accounting equation and its three elements.Good luck!Michael Celender

 Grateful 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 MUCHYou're very welcome!Regards,Michael CelenderFounder of accounting-basics-for-students.com

 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.

 Excellent! 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.Best,Michael Celender

 Thxxx by: Sajed khan Good job sir. Really good info, thanks.

 Khaalid by: Anonymous I understood although it was somehow difficult to classify their real meaning.

 Good answer by: Anonymous Simple and clear - well written!Thanks