The basic accounting equation dictates: the more Liabilities, the less Equity, and vice versa. In other words, the more assets your creditors can have a claim on, the less is your actual ownership of the business.

This works in other areas of your finances as well. In your home, the equity, or ownership you have, is determined by the difference between what you still owe to the lender, and what your home is worth. The less you owe, the more you “own” your home.

You can even apply this principal to your personal finances. Do you have a lot of debt? Credit cards and consumer loans – even your home mortgage – are liabilities that can affect your true “ownership” in your own finances. Remember: you are only yielding wealth when your income is yours, not always going to pay off creditors.

Post from: EveryJoe

Equity = Ownership