Q. What do you mean by Equities?
Assets were described earlier as the things of value owned by the business or the economic resources of the business. Equities are every claims to or interests in assets. For instance suppose that you purchased a new company automobile for USD 15000 by investing USD 10000 in your own corporation and borrowing USD 5000 in the name of the corporation from a bank. Your equity in an automobile is USD 10000 and the bank's equity is USD 5000. You can further explain the USD 5000 as a liability because you owe the bank USD 5000. If you are a corporation you can illustrate your USD 10000 equity as stockholders' equity or interest in the asset. Ever since the owners in a corporation are stockholders the basic accounting equation becomes
Assets A = Liabilities L + Stockholders' Equity SE
We can enter in the amount of its liabilities, assets and stockholders' equity
A = L + SE
USD 38,700 = USD 6,600 + USD 32,100
Remember that somebody should provide assets or resources-either a creditor or a stockholder.
Consequently this equation must always be in balance.
You are able to also look at the right side of this equation in another manner. The stockholders' equity and liabilities show the sources of an existing group of assets. Therefore liabilities aren't only claims against assets but also sources of assets. Together owners and creditors provide all the assets in a corporation. The elevated the proportion of assets provided by owners the more solvent the company. But companies are able to sometimes improve their profitability by borrowing from creditors and using the funds effectively. Since a business engages in economic activity the dollar amounts and composition of its liabilities, assets and stockholders' equity change. But the equality of the basic accounting equation always holds.