Difference Between Assets And Equity

Here we take into account the difference between Assets and Equity or Owner’s Equity in case of Sole Proprietorship or Sole Owner’s Business.

1. Assets are the resources of the business that provide probable future benefits acquired either by owners or outsiders of the business while equity is the rights of owners of the business and these are utilized for the sources of finance and investment of the business.

You Can Also Read Out, “Difference Between Liabilities And Owner’s Equity”

2. From Accounting Equation i.e., Assets = Liabilities + Equity, assets can be calculated by adding Liabilities to Equity while Equity can be computed by deducting Liabilities from Assets

Equity = Assets - Liabilities

3. Assets are of two types Current Assets and Non Current Tangible Assets / Fixed Assets while types or components of Equity are Share Capital (Common Stock), Share Premium, Reserves, Retained Earnings, Treasury Stock.

4. The normal balance for Assets is Debit, when we purchased it, it increases and we debit it and when it is sold out due to obsolete and other reasons, we credit it as it is going out of the business while normal or positive balance for equity is Credit , when the shareholders invested in the business it increases, so we credit it and when it is withdrawn from business as a dividend or Drawings in case of Sole Proprietorship, then it decreases and hence we debit it.

5. Assets are shown on Balance Sheet on Assets Side under the section of Current Assets and Fixed Assets while Equity is shown on Liabilities & Equity Side and then transferred to the Statement of Changes in Equity in order the check the performance of shareholder or stockholders investments and management role in the financing of funds.

So, we can say that Assets are the probable futures benefits which the company will enjoy later on if there is proper utilization of sources of finance whether these are financed internally (Equity) or Externally (Liabilities).