Ask the Accountant…
Question: What is equity in my business and how is that different from assets?
Answer: In accounting, equity is assets minus liabilities. Equity is the portion of your business that is yours after debts or liabilities are considered.
As an example, if you purchased a house for $300,000 and took a mortgage of $200,000, you have equity of $100,000.
The price paid for the house is your asset (what you own) minus the $200,000 mortgage loan (what you owe), which equals the equity you now have in your house.
As a distributor, our most common assets would be cash in bank and accounts receivables. The most common liabilities are Accounts Payable, Credit Card charges, Sales Tax Payable, and other loan balances outstanding.
The difference between the sum total of all the asset accounts and the sum total of all the liability accounts is your equity.
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