What is The Purpose of Equity In Accounting

The Main or Primary Purpose of Equity is to show the rights of owners of the business against the Assets of the business. The equity is also called Capital in sole proprietorship or partnership. It is shown on the Balance Sheet on Liabilities & Equity Side.

From the Accounting Equation, equity is the difference between assets and Liabilities as shown below:

Equity = Assets - Liabilities

 

As Equity is provided by the owners of the business so it is an internal source of financing for the business.