The Key Difference Between Equity And Assets

Equity and assets both provide value to a company and a business and help it operate or generate profits. Most people think that assets and equity are the same, but it is not true. There is a lot of difference between equity and assets. If you are one of these people who think that assets and equity are the same, then you need to know the difference between equity and assets. If you want to know the difference, then you are at the right place. Please read our blog on the difference between Equity and assets.

But before jumping on the difference, we will discuss what equity is and what is assets.

Precap:

What is Equity?

What are assets?

Difference between Equity and assets

How to calculate equity?
Example

How to calculate assets?
Example

Quiz

What Is Equity?

It is ownership of assets that may have debts or other liabilities attached to them. Equity is the value of assets left in the business for its owners after removing all the liabilities like bank loans and trade payables. It represents the amount of money that the company would return to shareholders in the event of liquidation. Below are some types of Equity.

Look at the relationship between a business’s assets and liabilities by using the below formula to measure your business equity.

Equity = assets – liabilities

What Are Assets?

All resources and property that are available in a business in the form of cash, receivables, inventory, buildings, and any other properties that can be used in the future to derive financial benefits for the business are called as assets. 

It can be physical possessions like inventory and buildings, or they can be monetary resources like cash and accounts receivables. Assets include

• Cash and cash equivalents
• Accounts Receivable
• inventory
• Investments
• Vehicles
• Plant and equipment
• Furniture
• Patents (intangible asset)

All business assets are shown on the balance sheet’s left side, and liabilities and Equity are shown on the right in accounting.

Accounting equations:

assets = liabilities + equity

Difference Between Equity And Assets

PARTICULARE	EQUITY	ASSETS
Definition	It is money bought by the Company’s Owners to start and run the business.	Assets are these things that are bought by the company and have a value attached to them.
Balance sheet	It is reflected on the Left Side of the Balance sheet.	Assets are reflected on the Right Side of the Balance sheet.
Depreciations	There is no effect of depreciation.	Depreciation affects assets.
Nature	It is the source of funds.	It is the resource required to start and run a business.
Market value and book value	It is reported in the balance sheet in the book value.	Assets reported in the balance sheet in both values, depending on asset type.
Classification	There is no Classification of Equity.	Assets are classified into Fixed Assets, Current Assets and Tangible Assets and Intangible Assets.
Purpose	Buying Assets and Paying off Debts.	Forgiving Financial Benefits to Businesses by utilisation.
Ownership	Equity is funds of Owner’s.	Assets are Property of the Company and a business.
DR/CR	It always carries a credit balance, which means the company must repay.	It always carries a debit balance which means that valuable things are the property of the Company.
Accounting equation	Equity = Assets – Liabilities	Assets= Equity+Liabilities
Represent	It is always represented as the net worth of a company.	Assets of the Company are valuable things or Property.

These are some main differences between Equity and assets. After reading about the difference between Equity and assets hope you now understand that they both are equally important for a business, but they are not the same.

also read: Bank As A Service Provider

How To Calculate Equity 

Below are some steps for the calculation of equity. You can easily calculate Equity with the help of the following steps.

Step 1:  First of all, calculate the total assets and the total liabilities from the balance sheet

Step 2:  deduct the total liabilities from the total assets.

Step 3:  after subtracting all liabilities from the total assets, you have the answer.

equity= total assets – total liabilities 

Examples of assets:

• Cash
• Investments
• Inventory
• Office equipment
• Machinery
• Real estate
• Company-owned vehicles

Examples of liabilities:

• Bank debt
• Mortgage debt
• Money owed to suppliers (accounts payable)
• Wages owed
• Taxes owed

You can also calculate Equity by using the below steps:

Step 1: Bring together all the categories under shareholder’s Equity from the balance sheet like common stock, additional paid-in capital, retained earnings, and treasury stock etc.

Step 2: Then, add all the categories except the treasury stock, which has to be deducted from the total.

Total Equity = Common Stock + Preferred Stock + Additional Paid-in Capital + Retained Earnings – Treasury Stock

Example:

A company XYZ ltd is in the business of manufacturing customised roller skates for both professional and amateur skaters. According to the balance sheet of XYZ Limited for the financial year ended on March 31, 20xx, the total assets are $900000, and the total liabilities are $200000.

Total Assets = $900000

Total Liabilities = $200000.

The calculation of total Equity can be done as follows,

Total Equity = $900000 – $200000 

Now total Equity will be –

= $700000

The total Equity of XYZ ltd as of March 31, 20xx, is $700,000.

How To Calculate Assets

Step 1. Find the total assets on the company’s balance sheet for the period.

Step 2. Calculate all liabilities, which should be a separate listing on the balance sheet.

Step 3. Locate the total shareholder’s Equity and add the total liabilities.

Step 4. All assets will equal the sum of liabilities and total Equity.

Assets = Liabilities + Equity

Example #1

What is the value of assets if a company owns real estate with a $250,000 owner equity and owes $180,000 on loan for that real estate?

Solution –

Given,

• Liabilities=$180,000
• Owner’s equity =$250,000

The calculation of total assets will be

= $180,00+ $250,00

= $430,000

Quiz

Q. A truck is an example of a(n)

• liability
• owner’s Equity
• Asset

Q. The accounting equation is:

• Assets = Liabilities – Owner’s Equity
• Assets = Liabilities + Owner’s Equity

Q. Prepaid expenses are classified as

• Assets
• liabilities
• owner’s Equity

Q.the company purchases equipment with its cash

• Assets (NE)
• Liabilities (I)
• Equity (I)

Q. Accounts Payable is a(n)

• Asset
• Liability
• Owner’s Equity

Conclusion

Equity and assets are both parts of a balance sheet. Both are equally important and play an essential role in a company and a business. Where Equity is the source of the funds required to create assets to start, run and grow a business. On the other hand, assets are financial resources necessary to run the business. 

FAQs: Difference Between Equity And Assets