ACCOUNTING FOR

OWNER’S EQUITY
CHARTS OF ACCOUNTS
BASIC ELEMENTS OF ACCOUNTING

1. Asset
2. Liabilities
3. Owner’s Equity
4. Revenue
5. Expenses
 OWNER’S EQUITY
Is the residual interest of
owners in the assets of the
enterprise, after deducting
all its liabilities.
CHARACTERISTICS
OF OWNER’S
EQUITY
 OWNERS’ RIGTHS

Represents the rights of owners

in the assets of a business
enterprise, after deducting all
its liabilities.
 Equity in the broad sense, refers
to any recognized rights to, or
interest in the assets of business
enterprise. Equity interest are of
two principal groups: Liabilities
and Owner’s Equity.
 Liabilities and owners’ equity

represents the right of the

owners.
 Residual Interest
 Residual interest ranks after
liabilities as a claim to enterprise
assets and significantly.
 Equity is a residual interest because

the claims of creditors must first be

satisfied, or not jeopardized, before
assets can be distributed to owners.
 Indefinite repayment date
 It has no definite repayment date except
upon liabilities.
 The claim of owners on assets of the

enterprise has no specific maturity date

except upon liquidation.
 Generally, are enterprise is not obligated

to transfer assets to owners, except upon

liquidation and when enterprise itself
formally acts to effect such transfer, for
example, by declaring a cash dividend.
 Measurability
 Itis not independently measurable, its
mount depends on the value assigned
to assets and liabilities.
 Equity cannot be measured separately

from other elements of financial

position because it is the excess of
assets over liabilities. As such, its
amount depends on the measurement
of assets and liabilities.
 Events
Increasing/Decreasing
Owners’ Equity
 Increases in Owners’ Equity
arise
 Investments in an enterprise by its
owners
 The net result of all revenue and
expenses recognized during a period (net
income).
 External events other than transfer
(revaluation of property and equipment.)
Owners Equity may also be increased by
prior period adjustments.
Decreases in owners equity arise from:
 Transfer from an enterprise to its
owners ( ex. Dividends, treasury
stock acquisition)
 Net losses for the period. Owners’

equity may also be decreased by

prior period adjustments and by
adjustment arising from quasi-
reorganization.
