The primary difference between Equity and Assets is that equity is anything that is invested in the company by its owner, whereas, the asset is anything that is owned by the company to provide the economic benefits in the future.
Difference Between Equity and Assets
Equity is obtained by subtracting liabilities from assets, be it owner’s equity or shareholder’s equity. Assets are defined as those who help the business manufacture and generate operating revenues.
What is Equity?
Owner’s equity or shareholders equity is that part of the balance sheet which we get by subtracting liabilities from assets. Whenever the owner of a company decides to start a business, it requires resources to buy property machinery and other things to manufacture products and start and run the business. There are two sources of funds to buy all the assets required to run a business. One of the sources of funds is debt, and the other sources of funds are equity. Equity is part of sources of funds which is funded by the owners of the company. Equity comprises of various other subparts that add up to the owner’s equity. They are contributed capital, retained earnings, treasury stocks, preferred shares, and share of minority interest, which is also known as non-controlling interest.
What are Assets?
Assets are that part of a company that helps the business to manufacture products and generate operating revenue. Assets are the resources that are required by the business to run and grow the business. A lot of line items in the balance sheet adds up together to form the total assets in the balance sheet. Those line items are cash and cash equivalents, which comprise cash and short term financial assets, which are as liquid as cash. Assets also include all machinery, property, and plant, which are mainly hard assets, which are reported as the gross fixed asset, which consists of the component of depreciation. Cash and PPE form a significant part of assets for a business. Other assets comprise of accounts receivable, deferred tax assets, financial assets, prepaid expenses. The asset side of the balance sheet also includes intangible assets; one of the popular intangible assets is goodwill, which is created while acquiring a new company. These are the most valuable assets through the list is not comprehensive.
The accounting equation followed is:
Equity vs. Assets Infographics
Key Differences Between Equity and Assets
- Equity is made up of contributed capital, retained earnings, treasury stocks, preferred shares, and share of minority interest. Assets are made up of cash and cash equivalent, property, plant, equipment, account receivables, deferred tax assets, and intangible assets.
- Equity is not affected by depreciation, whereas depreciation has an impact on the assets. Gross fixed assets, together with depreciation form net fixed assets.
- Equity is the fund that is required to create the resources, whereas assets are those resources that are required to run a business.
- In a balance sheet to balance it equities can be achieved by subtracting equities from liabilities. We obtain assets by summing up assets and the liabilities in the balance sheet.
- While reporting equity, it is reported as the balance in book value. It is entirely on each asset, whether it should be reported in the balance sheet on market value or book value.
- There is no classification of equities, but assets can be classified as either tangible or intangible assets.
Comparison Table
| Basis | Equity | Assets | ||
| Definition | Owner’s equity or shareholders equity is that part of the balance sheet which we get by subtracting liabilities from assets. | Assets are that part of a company that helps the business to manufacture products and generate operating revenue. | ||
| Line Items | It is comprised of contributed capital, retained earnings, treasury stocks, preferred shares, and share of minority interest. | Assets comprise of cash and cash equivalent, property plant and equipment, deferred tax, accounts receivables, deferred tax assets, and intangible assets. | ||
| Depreciation | There is no effect of depreciation in equity. | Fixed assets are reported in the balance sheet as gross fixed assets and are netted with accumulated depreciation to come up with net fixed assets. | ||
| Nature | Equity is the source of funds required to create the resources. | Assets are the resources required to run a business. | ||
| Accounting Equation | When following the accounting equation to balance the balance sheet, equity can be arrived subtracting liabilities from equities. | Assets are arrived at by summing up assets and liabilities in the balance sheet. | ||
| Link with Income Statement | Retained earnings, which are part of equity, increases every quarter as the net income after paying a dividend is added to retained earnings. | Depreciation is an operating expense in the income statement. Assets in the balance sheet are depreciated, either using a simple method or DDM method every quarter. | ||
| Market value or Book value | Equity is reported in the balance in book value. | It depends on the individual asset, whether an asset is reported in the balance sheet on market value or book value. | ||
| Classification | No such classifications can be done in case of equities. | Assets can be classified either based on their liquidity, which is current assets or fixed assets. And also can be classified as either tangible assets or intangible assets. |
Conclusion
Both equities and assets are part of the balance sheet. The accounting equation used to equate the balance sheet is assets equal liabilities plus equity. Equity is the source of the funds required to create assets to run and grow a business. On the other hand, assets are economic resources necessary to run the business. Assets can be classified as fixed assets or current assets based on the liquidity of the assets. All the three financial statements get connected with the various line items of both assets vs. equities.
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