owners' equity

Examples of owners' equity in the following topics:

• Owners' Equity

  • At the start of a business, owners put some funding into the business to finance operations.
  • This creates a liability on the business in the shape of capital as the business is a separate entity from its owners.
  • After liabilities have been accounted for, the positive remainder is deemed the owners' interest in the business.
  • In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity; which is thus reduced to zero.
  • In financial accounting, equity capital is the owners' interest on the assets of the enterprise after deducting all its liabilities.

• The Accounting Equation

  • The accounting equation is a general rule used in business transactions where the sum of liabilities and owners' equity equals assets.
  • A company with $30,000 in liabilities and $10,000 in owners' equity would have $40,000 in assets according to the accounting equation.
  • The fundamental accounting equation, which is also known as the balance sheet equation, looks like this: $\text{assets} = \text{liabilities} + \text{owner's equity}$.
  • On the right side of the equation are claims of ownership on those assets: liabilities are the claims of creditors (those "outside" the business); and equity, or owners' equity, is the claim of the owners of the business (those "inside" the business).
  • If the company issues stock to obtain the funds for the purchase, then assets and equity both increase.

• Assets

  • That is, the total value of a firm's assets are always equal to the combined value of its "equity" and "liabilities. " In other words, the accounting equation is the mathematical structure of the balance sheet.

• Defining the Balance Sheet

  • Assets, liabilities, and ownership equity are listed as of a specific date, such as the end of the company's financial year.
  • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
  • Another way to look at the same equation is that assets equals liabilities plus owner's equity.
  • Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity).
  • This balance sheet shows the company's assets, liabilities, and shareholder equity.

• Financing Company Operations

  • Examples of bootstrapping include: Owner financing, sweat equity, minimization of the accounts receivable, joint utilization, delaying payment, minimizing inventory, subsidy finance, and personal debt.
  • Examples of Bootstrapping: Owner financing Sweat equity Minimization of the accounts receivable Joint utilization Delaying payment Minimizing inventory Subsidy finance Personal Debt
  • Many businesses need more capital than can be provided by the owners themselves.
  • In many cases, these services are in return for an equity stake.

• Basic financial statements

  • The Balance Sheet will show you the financial condition of your business, what you own, what you owe, and the owners' financial interest.
  • The cost of goods sold is the total cost the owner of a business paid for products sold.
  • It is an important figure for owners to watch, and you will sometimes hear business owners talk about their margins or "managing their margins".
  • This is, of course, a relatively simple example to illustrate the general outline of an Income Statement, but it should give you an appreciation of why the Income Statement is important to the owner of any business.
  • It is because the sum of the asset accounts must equal the sum of the liability and owner's equity accounts.

• Basic types of accounts

  • Equity accounts: represent the residual equity of a business (after deducting from assets all the liabilities).In the case of a start-up company totally financed by the founder, it is often called owner's equity and represents the capital provided by the owner.If the company is a corporation and stock has been issued to the owner and to others, it is often called stockholders' equity.
  • Contra-accounts: from the term ciccia, meaning to deduct, these accounts are opposite to the other five above mentioned types of accounts.For instance, a contra-asset account is accumulated depreciation.This label represents deductions to a relatively permanent asset like a building.It accumulates an annual charge in recognition that a fixed asset like a building is not used up over the course of a year, but that it has a useful life measured in multiple years.Since in certain countries and under certain economic conditions real estate tends to steadily rise in price, perhaps a better example is a truck purchased for use in the business.Its value is more likely to continue to decrease over the years.Even though the market value of a building might increase rather than decrease over the years, accountants will still reduce its value by an annual depreciation charge each year.This is a good example of how financial accounting differs from managerial accounting from the owner's perspective.Depreciation on a building or a truck reduces income for tax purposes in most countries, so it is to the owner's advantage to reflect depreciation charges in the company's accounting records.On the other hand, you can bet that the owner knows the true market value of the building when it comes time to sell it!

• Marketing Environment Research

  • Example of Marketing Research: Brand Equity Brand equity is a phrase used in the marketing industry to try to describe the value of having a well-known brand name, based on the idea that the owner of a well-known brand name can generate more money from products with that brand name than from products with a less well known name, as consumers believe that a product with a well-known name is better than products with less well known names. [1][2][3][4] Another word for "brand equity" is "brand value".
  • Some marketing researchers have concluded that brands are one of the most valuable assets a company has,[5] as brand equity is one of the factors which can increase the financial value of a brand to the brand owner, although not the only one. [6] Elements that can be included in the valuation of brand equity include (but not limited to): changing market share, profit margins, consumer recognition of logos and other visual elements, brand language associations made by consumers, consumers' perceptions of quality and other relevant brand values.
  • Consumers' knowledge about a brand also governs how manufacturers and advertisers market the brand. [7][8] Brand equity is created through strategic investments in communication channels and market education and appreciates through economic growth in profit margins, market share, prestige value, and critical associations[disambiguation needed].
  • Brand equity can also appreciate without strategic direction.
  • A Stockholm University study in 2011 documents the case of Jerusalem's city brand. [9] The city organically developed a brand, which experienced tremendous brand equity appreciation over the course of centuries through non-strategic activities.

• Equity Finance

  • Companies can use equity financing to raise money and/or increase shareholder liquidity (through an IPO).
  • The owners of a private company may want additional capital to invest in new projects within the company.
  • By selling shares they can sell part or all of the company to many part-owners.
  • Financing a company through the sale of stock in a company is known as equity financing.
  • Firms obtain capital from two kinds of sources: lenders and equity investors.

• Demanding a Premium

  • The business owner can cut costs or sell more, or find more profit with a better pricing strategy.
  • To the marketer, it means creating a brand equity or value for which the consumer is willing to pay extra.