Equity
Definition
The owners residual claim on the business after every liability is settled: Equity = Assets minus Liabilities. Made up of capital contributed by owners plus accumulated retained earnings, less any drawings or distributions. Also called net worth or shareholders funds.
Related Terms in Core Accounting
Retained Earnings
The cumulative profit a business has earned since inception, less every dividend or distribution paid out. It sits in equity on the balance sheet and is the link between the profit and loss statement and the balance sheet each period.
Owners Draw
Money or assets a sole proprietor or partner takes out of the business for personal use. A draw reduces equity rather than appearing as a business expense, so it never affects reported profit, and it is not payroll. Owners of corporations take salary or dividends instead.
Capital Expenditure (CapEx)
Spending to acquire or improve a long-lived asset, capitalised on the balance sheet and then depreciated over its useful life rather than expensed at once. Buying a delivery van is capital expenditure; fuelling it is an operating expense.
Operating Expense (OpEx)
The day-to-day cost of running the business, charged against profit in the period it is incurred: rent, salaries, software subscriptions, utilities and professional fees. Contrasted with capital expenditure, which is capitalised and depreciated.
Stop memorising terms — let HelloBooks do the work
AI-assisted bookkeeping that handles invoicing, GST, reconciliations, and reports automatically. Free to start.