Question

what is equity definition?

and difference type of equity?

Answer 1

In Accounting, Equity is the difference between the value of Assets and the value of Liabilities of something owned.

EQUATION FOR CALCULATION OF EQUITY :  

EQUITY = ASSETS - LIABILITIES

Other wise, Equity can also refer to a Company's share capital, the value of the share capital depends on the Company's

future economic prospects.

The types of owner's equity depend on the nature of the entity and it includes :

1.Share capital (common stock)

The fund raised by a company by issue of shares is called share capital , the types of share capital includes

common stock and preferred stock.

Common stock represent ownership in a corporation. Common stock holders have the right to vote in election of the Board of Directors and to other such corporate decision. On liquidation of the company common stockholders are paid only after all creditors have been settled.

2. Preferred stock

Preferred stock is another type of share capital, these stockholders have the preference to receive dividend before it issue to common shareholders and they do not have any voting rights.

3. Capital surplus

Capital surplus represents the difference between the market value and their par value.

4. Retained earnings

Retained earnings are the profit of the organisation after deducting all payments to investors . A good retained earnings shows a financially healthy organisation.

Closing retained earnings = Opening retained earnings +/(-) Profits/(Losses) - Dividend

5. Treasury stock

Treasury stock means repurchase of previously issued shares by the company from the shareholders, this stock will be permanently make retire the shares or it can be sold in the future.

6. Stock option

A stock option is the right to purchase specific number of shares for a specific price at a fixed period of time at a future date irrespective of the market value of such shares.

7. Reserves

Reserves are the portion of profit of the entity retained in the business to meet future contingencies and growth. That is to dividend payments, improving the financial position , Legal requirements etc.The examples of reserves includes General reserves, Dividend equalisation reserve and reserve for expansion etc.