Answer to Question #124555 in Accounting for muhammad hasnain

Question

Q.No.1) Briefly explain the following concepts with examples.
a.)
Owners’ Equity examples include common stock and preferred stock, retained earnings, accumulated profits, general reserves and other reserves, etc. So describe the Owners’ Equity and also Distinguishing between Owners’ Equity and Owners’ Capital.

Answer 1

a) Owner's equity refers to the total value of assets in a business that can be claimed by the owner. For example, if the asset of a business is $10,000 and liabilities is $7000, then the owner's equity is assets less liabilities, giving $3000.

b)Owner's equity is the owner's claim in the business , while owner's capital is the owner's investment in the business. For example, if a business owner puts his personal car to be used to run business activities, then the car becomes the owner's equity since he can claim it, while if he puts the same vehicle as an investment and it generate profits, then the profits generated are the owners capital.

References

Mclaney, Eddie. & Peter, Atrill. (2018). Accounting and Finance: An introduction. 9 edn. Pearson.