{"id":38941,"date":"2017-06-05T15:04:05","date_gmt":"2017-06-05T15:04:05","guid":{"rendered":"http:\/\/localhost:8888\/cregital\/disha\/2017\/06\/05\/the-accounting-equation-demystified-lesson-iii\/"},"modified":"2017-06-05T15:04:05","modified_gmt":"2017-06-05T15:04:05","slug":"the-accounting-equation-demystified-lesson-iii","status":"publish","type":"post","link":"https:\/\/msmehub.org\/staging\/6671\/the-accounting-equation-demystified-lesson-iii\/","title":{"rendered":"The Accounting Equation Demystified Lesson III"},"content":{"rendered":"<p>Good Morning Class and welcome back to the Accounting Equation, Professor Matthew chants.<\/p>\n<p>It gives me great pleasure to introduce you to the last class on the Accounting Equation, which is focused on Equity.<\/p>\n<p>According to the IASB Framework, Equity is the residual interest in the assets of the entity after deducting all the liabilities, Professor Matthew continues.<\/p>\n<p>Equity is the livewire of every enterprise particularly at the startup phase, because it is required before you get the business off the ground, Professor Matthew exclaims.<\/p>\n<p>Professor, are you saying that before a business starts, you must have equity or startup capital Abdul quizzes.<\/p>\n<p>I now understand why Standard Chartered Bank specifically asked me what percentage was my equity contribution Chimezie chips in.<\/p>\n<p>Let me explain this further Professor Matthew replies.<\/p>\n<p>Equity is what the owners of an entity have invested in an enterprise.<\/p>\n<p>Equity represents what the business owes to its owners.<\/p>\n<p>Equity is also a reflection of the capital left in the business after assets of the entity are used to pay off any outstanding liabilities.<\/p>\n<p>Equity includes share capital contributed by the shareholders along with any profits or surpluses retained in the entity.<\/p>\n<p>Equity is what the owners take home in the event of liquidation of the entity.<\/p>\n<p>Some examples of Equity recognized in a financial statement&nbsp;include the following:<\/p>\n<ul>\n<li>Ordinary Share Capital<\/li>\n<li>Preference Share Capital (irredeemable)<\/li>\n<li>Retained Earnings (profit carried over from the previous year)<\/li>\n<li>Revaluation Surpluses<\/li>\n<\/ul>\n<p>Finally, Professor recaps, Equity is required to demonstrate commitment on the part of the entrepreneur and to answer Abdul&#8217;s question earlier on, yes, you need to have your own equity contribution at least 20% of the total funds you need before approaching a bank or an investor for the remaining 80%.<\/p>\n<p>The Accounting Equation may further explain the meaning of equity:<\/p>\n<p>Assets &#8211; Liabilities = Equity<\/p>\n<p>This further illustrates the fact that equity is what remains after liquidation because your assets pay off all your liabilities. So always endeavor to pay your debts.<\/p>\n<p>The whole class laughs.<\/p>\n<p>Rearranging the above equation, we have<\/p>\n<p>Assets = Liabilities + Equity<\/p>\n<p>Let me also add that if you pick up any balance sheet, you will notice that they are arranged in this format: Assets, Liabilities and owners&#8217; equity.<\/p>\n<p>The Asset of a company has to be financed in some way.<\/p>\n<p>They can be financed either by debt (Liability) or by share capital and retained profits (Equity).<\/p>\n<p>Hence, equity must be viewed as a type of liability a company has towards its owners in respect of the assets they financed.<\/p>\n<p>I hope with these few points of mine, I have clearly demystified the Accounting Equation.<\/p>\n<p>Thank you very much class for your time, it was indeed a great learning experience for all of us, the professor says.<\/p>\n<p>The class ends with clapping and a standing ovation for Professor Matthew.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Accounting Equation Demyst&#8230;<\/p>\n","protected":false},"author":1025,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[337,336],"tags":[548,546],"class_list":["post-38941","post","type-post","status-publish","format-standard","hentry","category-accounting-and-bookkeeping","category-business-accounting","tag-business-accounting","tag-equity"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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