Equity
In one sentenceWhat remains for the owners in the business's assets after deducting all its liabilities; it includes capital, reserves and retained earnings.
Simply put
If you sold all the business's assets at their book value and paid all its debts, what remains is equity: the owners' share.
It increases with capital the owners contribute and with profits, and decreases with losses, personal drawings and dividends.
Worked example
A restaurant has assets of 800,000 SAR and liabilities of 350,000 SAR.
Total assets800,000 SAR
Total liabilities350,000 SAR
Equity (800,000 − 350,000)450,000 SAR
Formula: Equity = Assets − Liabilities
Don't confuse it with
LiabilityA debt to others that must be paid on time, while equity is the owners' residual claim.