What is owner's equity?

• The accounting equation can be stated as follows:

Assets = Liabilities + Owners' equity.

This means, owners' equity = assets - liabilities.

• Owners' equity is the difference between the firm's assets and its liabilities.In other words, it is the owner's claim on the assets of the company after deducting all liabilities
• Revenues increase equity and expenses, drawings ( or dividends) decrease equity.

Therefore we can rewrite the accounting equation as follows:

Assets = Liabilities + ( capital + revenue - expenses - drawings)

Owner's equity is calculated as capital (or owner's investment in business) - drawings ( or withdrawals from business) + net income (or - net loss)

• The term owners' equity is used in case of sole proprietorship.But in case of a company, the term shareholders' equity is used.