Owner’s Equity VS Retained Earnings
What is the difference between Owner’s Equity and Retained Earnings?
Here we study the difference between these Accounting Terms.
Owner’s Equity Definition And Meaning
It is the amount which is invested by the sole proprietor
in the business. So, any amount contributed by the owner to the
business in form of Cash or Goods is treated as the rights of the owner
and business is separate legal entity so the business has to pay this
amount to owner before closing down. Although, the Sole Proprietorship
business will close down automatically when the owner dies, so there is
no chance to close it manually.
Retained Earnings Definition And Meaning
These are the profits which are retained in the business for future purposes, e.g., in case of crisis, for further investments purposes, etc.
The
company needs money from time to time to invest in the business or in
case of crisis such earnings will be used to avoid disasters and for the
survival of the business.
Owner’s Equity is concerned with Sole Proprietorship and Retained Earnings are concerned with Company businesses.
Owner’s Equity is calculated as:
Owner’s Equity = Assets - Liabilities
Retained Earnings is calculated by preparing Statement of Retained Earnings, Retained Earnings Formula is given as:
Opening Retained Earnings + Net Income for the year – Dividend = Closing Retained Earnings / Retained Loss
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