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Simple English definitions for legal terms
owners' equity
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A quick definition of owners' equity:
Owners' equity is the amount of money that the owners of a business have invested in it, plus any profits that the business has earned and kept. It is calculated by subtracting the business's liabilities (debts) from its assets (things it owns). Owners' equity is what is left over after all the bills have been paid. It is like the money you have left in your piggy bank after you have paid for all your toys and treats.
A more thorough explanation:
Owners' equity is the total value of the owners' financial interests in a business. It includes the capital contributed by the owners and any retained earnings. In simpler terms, it is the amount of money that the owners would receive if the business were to be sold and all debts were paid off.
For example, if a business has assets worth $500,000 and liabilities worth $200,000, the owners' equity would be $300,000 ($500,000 - $200,000). This means that the owners have a financial interest of $300,000 in the business.
In a corporation, owners' equity is also known as shareholders' equity or stockholders' equity. This includes the value of the shares that the owners hold in the company.
Owners' equity is important because it shows how much of the business is owned by the owners and how much is owed to creditors. It also shows how profitable the business has been over time, as retained earnings are included in the calculation.