Capital is the basis for the creation and development of the company. In the process of functioning of the company, it ensures the interests of personnel, owners, as well as the state. Any company engaged in a particular activity should have a certain capital, which is a combination of cash and values necessary to ensure economic activity.
Depending on the ownership of a particular enterprise, the funds may be own or borrowed.
Equity is the value of all the assets of the company that are owned by it and are used to form the share of assets. The business entity can operate with it when making transactions without any reservations. Own funds have different sources of resources in terms of content, principles of use and formation: additional, reserve and authorized capital. The equity structure also includes retained earnings; special funds and other reserves, as well as government subsidies and gratuitous receipts. The main sources of generating own funds are net profit after deduction of taxes and dividends and owners' funds invested in the authorized capital of the company. The amount of the authorized capital is indicated in the charter or in the constituent documents. And you can change this amount only in accordance with the results of the enterprise for the past year and as a result of changes in the data in the constituent documents. Share capital (authorized capital, authorized capital) of the enterprise determines the minimum size of the organization’s property, which will guarantee the interests of its creditors. Thus, own funds should not be less than the declared authorized capital.
Equity is, to one degree or another, the source of the formation of funds that are used by the enterprise to achieve certain goals.
2 main components are distinguished as part of own funds: capital, which was invested by the owners in the organization (invested), and capital, which was created in excess of the enterprise originally advanced by the owners (accumulated).
Invested funds are formed at the expense of preferred and ordinary shares. In addition, it includes additional paid-in capital and values received free of charge. Accumulated funds are formed during the distribution of net profit. As a result, equity, for example, equity of a bank or trading company, will change depending on the results of the firm.
Equity
Evaluation of equity is an important analytical indicator. In the event that the organization has no obligations to creditors, then the value of the property of the company will be equal to equity. If the company has obligations, then equity is the amount of assets minus the amount of obligations. Therefore, the amount of equity is called net assets.
The total value of the net assets of the organization is determined on the basis of the annual balance sheet in the prescribed manner. Valuation is provided in addition to the annual statement of changes in equity.
As a result, we can conclude that equity is the assets of the enterprise that are used to form the share of assets. The amount of equity may vary depending on the results of the organization (loss, profit) and the value of the assets of the enterprise is determined, net of liabilities to creditors.