From an accounting point of view, equity equals net assets, i.e. it is the residual of assets and liabilities. From a legal perspective, equity defines on the one hand the claims of shareholders on the company; on the other hand it defines what is liable to creditors in case of insolvency. A third perpective is the controlling view: How much of the equity was paid in from the outside (i.e. individual claims of shareholders on the company, in particular voting rights) and how much was earned and retained in the company (i.e. can be claimed by the shareholders)?

For proprietorships and partnerships, there are no specific requirements regarding how to report equity; the GAAP, in particular the principle of clarity and transparency, ...

Get Financial Accounting now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.