Owner's equity represents the owner's residual interest in the assets of a business after deducting liabilities. It is calculated using the basic accounting equation:
Owner’s Equity = Assets − LiabilitiesSteps to Calculate Owner’s Equity :* Determine Total Assets : Assets are what the business owns and can include cash, accounts receivable, inventory, property, equipment, etc.
* Determine Total Liabilities : Liabilities are what the business owes, such as loans, accounts payable, accrued expenses, and unearned revenue.
* Subtract Liabilities from Assets : Subtract the total liabilities from the total assets to calculate the owner's equity.
Example Calculation : Suppose a business has the following:
* Assets: $500,000
* Liabilities: $300,000
Owner’s Equity=Assets−Liabilities=500,000−300,000=200,000
The owner's equity is $200,000.
