Is Equity and Capital the Same?

by Sindhu
(Klang, Selangor, Malaysia)

Q: Is equity and capital the same ?

A: No, they are not.

Equity, also known as owner's equity, is the owner's share of the assets of a business.

(Assets can be owned by the owner or owed to external parties - liabilities or debts. See our tutorial on the basic accounting equation for more on this).

Capital is the owner's investment of assets into a business.

Capital is a subcategory of owner's equity.

But it's not the only subcategory.

The owner can also make profits from a business that he/she runs. These profits belong to the owner (they don't belong to anyone else, right?).

Therefore, profits from a business are also part of owner's equity.

Profits are kept in accounts called reserves.

Therefore owner's equity consists of capital plus reserves (accumulated profits).

Capital is one sub-category of equity, reserves are another.

Hope that helps clarify the difference between equity and capital.

See below for more questions and comments as well as related tutorials.

- Michael Celender
Founder of Accounting Basics for Students


Related Questions & Tutorials:

• What is Owners Equity?
• The Statement of Owners Equity
• Or see more Basic Accounting Questions and Answers

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