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 earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company., treasury stocksTreasury StocksTreasury Stock is a stock repurchased by the issuance Company from its current shareholders that remains non-retired. Moreover, it is not considered while calculating the Company’s Earnings Per Share or dividends. , preferred shares, and share of minority interestShare Of Minority InterestMinority interest is the investors' stakeholding that is less than 50% of the existing shares or the voting rights in the company. The minority shareholders do not have control over the company through their voting rights, thereby having a meagre role in the corporate decision-making., which is also known as non-controlling interestNon-controlling InterestIt generally projects curves on the data sets. For example, to forecast population growth, forming a non-linear relationship between time and growth..
What are Assets?
Assets are that part of a company that helps the business to manufacture products and generate operating revenueOperating RevenueOperating revenue is defined as revenue earned by an individual, corporation, or organization from the core activities that they undertake on a regular basis. There are several methods to earn revenue, but operational revenue is earned by the core business activities that the organization undertakes in its daily operations.. 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 equivalentsCash And Cash EquivalentsCash and Cash Equivalents are assets that are short-term and highly liquid investments that can be readily converted into cash and have a low risk of price fluctuation. Cash and paper money, US Treasury bills, undeposited receipts, and Money Market funds are its examples. They are normally found as a line item on the top of the balance sheet asset. , 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 assetsDeferred Tax AssetsA deferred tax asset is an asset to the Company that usually arises when either the Company has overpaid taxes or paid advance tax. Such taxes are recorded as an asset on the balance sheet and are eventually paid back to the Company or deducted from future taxes., financial assets, prepaid expenses. The asset side of the balance sheet also includes intangible assets; one of the popular intangible assets is goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price., which is created while acquiring a new company. These are the most valuable assets through the list is not comprehensive.
The accounting equationThe Accounting EquationAccounting Equation is the primary accounting principle stating that a business's total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. followed is:
Equity vs. Assets Infographics
Key Differences Between Equity and Assets
- Equity is made up of contributed capitalContributed CapitalContributed capital is the amount that shareholders have given to the company for buying their stake and is recorded in the books of accounts as the common stock and additional paid-in capital under the equity section of the company’s balance sheet., 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 taxDeferred TaxDeferred Tax is the effect that occurs in a firm as a result of timing differences between the date when taxes are actually paid to tax authorities by the company and the date when such tax is accrued. Simply put, it is the difference in taxes that arises when taxes due in one of the accounting period are either not paid or overpaid. 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 sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company. 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.
|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 revenueOperating RevenueOperating revenue is defined as revenue earned by an individual, corporation, or organization from the core activities that they undertake on a regular basis. There are several methods to earn revenue, but operational revenue is earned by the core business activities that the organization undertakes in its daily operations..|
|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 equipmentProperty Plant And EquipmentProperty plant and equipment (PP&E) refers to the fixed tangible assets used in business operations by the company for an extended period or many years. Such non-current assets are not purchased frequently, neither these are readily convertible into cash. , 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 assetsNet Fixed AssetsNet Fixed Assets is a financial metric used to calculate the overall value of a firm’s fixed assets. You can calculate it by deducting the total depreciation or liabilities from the total amount paid for all the 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 expenseAn Operating ExpenseOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit. 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.||It depends on the individual asset, whether an asset is reported in the balance sheet on market value or book value.|
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 statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. get connected with the various line items of both assets vs. equities.
This article has been a guide to Equity vs. Assets. Here we discuss the top differences between Equity and Assets along with infographics and comparison table. You may also have a look at the following articles –