• Imagine a business has a massive garage sale, selling EVERYTHING! The cash left after paying off what they owe is called equity.

🌍 Real-World Example

• Think of a house. If you sell the house (liquidate it) and pay off the mortgage, the money left is like your equity in the house.

A fancy term for selling off all the company's assets to pay its debts.

• Share Capital 🏦: Money brought into the business by selling shares initially. It's not affected by the daily ups and downs in the stock market.

  🌍 Real-World Example

  • A startup might issue shares to raise funds. If they sell 1,000 shares at $10 each, their share capital is $10,000.

• Retained Earnings 💼: The sum of profits (or losses) kept in the business over time. For non-profits, think of it as "retained surpluses".

  🌍 Real-World Example

  • Let's say a business earns $5,000 profit in year one and $7,000 in year two. If they keep all of that money in the business, their retained earnings are $12,000 after two years.

🔥 HOT TIP: Equity in profit-making businesses = Share Capital + Retained Earnings. Simple!

• Only one thing to note: Retained Earnings (or retained surpluses). Remember, they're not about the profit!

🔥 HOT TIP: Equity in non-profits = Retained Earnings. Even simpler!