Equity Terms: Definitions, Components, and Examples
Explore accounting terms related to owner’s equity and shareholders’ equity, including capital, common stock, preferred stock, additional paid-in capital, retained earnings, dividends, withdrawals, treasury stock, accumulated other comprehensive income, equity transactions, statement presentation, and examples.
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Search for equity definitions and related accounting topics published on Accountant Compass.
Equity Terms Learning Path
Follow this sequence to understand equity definitions, components, changes, and financial statement reporting.
Understand Equity
Learn why equity represents the residual interest after liabilities are deducted from assets.
What Is Equity? →Identify Equity Components
Study capital, common stock, preferred stock, paid-in capital, retained earnings, and treasury stock.
Explore Equity Components →Track Changes in Equity
Understand how contributions, profit, loss, dividends, withdrawals, and share transactions change equity.
Explore Changes in Equity →Report and Analyze Equity
Learn balance sheet presentation, statement of equity reporting, disclosures, and equity ratios.
Explore Equity Reporting →Major Equity Classifications
Equity may be grouped by legal form, source, ownership structure, and accumulated business results.
Owner’s Equity
The owner’s residual interest in a sole proprietorship or similar business after liabilities are deducted.
Shareholders’ Equity
The residual interest attributable to shareholders, including contributed and earned capital components.
Contributed Capital
Equity created through owner investments or the issuance of shares to investors.
Earned Capital
Equity generated through accumulated profits, losses, dividends, and other retained results.
Browse Equity Terms by Category
Use these collections to find related equity definitions and explanations.
Owner’s Equity Terms
Owner capital, contributions, withdrawals, drawings, net income, and ending capital.
Explore Owner’s Equity Terms →Shareholders’ Equity Terms
Common stock, preferred stock, paid-in capital, retained earnings, and treasury stock.
Explore Shareholders’ Equity Terms →Share Capital Terms
Authorized, issued, outstanding, par value, stated value, and classes of shares.
Explore Share Capital Terms →Retained Earnings Terms
Beginning retained earnings, profit, loss, dividends, appropriations, and ending balance.
Explore Retained Earnings Terms →Dividend and Distribution Terms
Cash dividends, stock dividends, declared dividends, distributions, and payment dates.
Explore Dividend and Distribution Terms →Treasury Stock Terms
Share repurchases, treasury shares, cost method, reissuance, retirement, and equity reductions.
Explore Treasury Stock Terms →Other Comprehensive Income Terms
OCI, accumulated OCI, translation adjustments, hedges, pensions, and unrealized changes.
Explore Other Comprehensive Income Terms →Equity Analysis Terms
Book value per share, return on equity, payout ratios, capital structure, and equity growth.
Explore Equity Analysis Terms →Essential Equity Terms
Start with these commonly used equity definitions.
Equity
The residual interest in an entity’s assets after deducting its liabilities.
View Definition → OOwner’s Equity
The owner’s residual interest in the assets of a sole proprietorship or similar entity.
View Definition → SShareholders’ Equity
The residual interest attributable to shareholders after liabilities are deducted from assets.
View Definition → CCapital Account
An equity account used to record an owner’s investment and changes in ownership interest.
View Definition → OOwner Contributions
Assets or resources invested by an owner that increase equity.
View Definition → WOwner Withdrawals
Resources removed by an owner for personal use that reduce owner’s equity.
View Definition → CCommon Stock
An equity account representing common shares issued by a corporation.
View Definition → PPreferred Stock
A class of shares with specified preferences that differ from common stock.
View Definition → AAuthorized Shares
The maximum number of shares a corporation is legally permitted to issue.
View Definition → IIssued Shares
Shares that a corporation has distributed to shareholders.
View Definition → OOutstanding Shares
Issued shares currently held by investors, excluding treasury shares.
View Definition → PPar Value
A stated legal amount assigned to a share under the entity’s governing documents.
View Definition → AAdditional Paid-In Capital
Contributed capital recorded above the par or stated value of issued shares.
View Definition → CContributed Capital
Equity arising from owner investments or share issuances rather than accumulated earnings.
View Definition → RRetained Earnings
Cumulative corporate earnings retained after dividends and other adjustments.
View Definition → BBeginning Retained Earnings
The retained earnings balance carried forward from the previous reporting period.
View Definition → EEnding Retained Earnings
The final retained earnings balance after profit or loss and dividends are considered.
View Definition → DDividends
Distributions of corporate value to shareholders that generally reduce retained earnings.
View Definition → CCash Dividend
A dividend distributed to shareholders in cash.
View Definition → SStock Dividend
A distribution of additional shares to existing shareholders.
View Definition → TTreasury Stock
A contra-equity balance representing a corporation’s repurchased shares.
View Definition → AAccumulated Other Comprehensive Income
The cumulative balance of qualifying OCI items reported within shareholders’ equity.
View Definition → BBook Value per Share
An equity-based measure comparing qualifying common equity with common shares outstanding.
View Definition → RReturn on Equity
A profitability measure comparing net income with average shareholders’ equity.
View Definition → SStatement of Equity
A financial statement reconciling beginning equity balances with ending balances.
View Definition →Connect Every Equity Term to Ownership and Financial Performance
Equity definitions become more useful when connected to owner contributions, share issuances, profit or loss, dividends, withdrawals, treasury stock, comprehensive income, balance sheet presentation, and the statement of equity.
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Frequently Asked Questions About Equity Terms
What is equity in accounting?
Equity is the residual interest in an entity’s assets after liabilities are deducted. Its detailed components depend on the legal form of the business.
What is the difference between owner’s equity and shareholders’ equity?
Owner’s equity commonly refers to sole proprietorships and similar entities. Shareholders’ equity refers to corporations and includes share capital, retained earnings, treasury stock, and other components.
What increases equity?
Equity may increase through owner contributions, share issuances, net income, and qualifying other comprehensive income items.
What decreases equity?
Equity may decrease because of net losses, dividends, owner withdrawals, share repurchases, and qualifying other comprehensive losses.
Where is equity reported?
Ending equity is reported in the equity section of the balance sheet. Changes during the period are explained in the statement of equity or related disclosures.
Continue to Revenue Terms
After learning how ownership interests are created and changed, continue with Revenue Terms to study sales, service revenue, recognition, accrued revenue, deferred revenue, gains, net sales, and related reporting concepts.
Continue to Revenue Terms