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Equity
Equity represents the owner’s interest in a business, calculated as assets minus liabilities. It reflects the net value that owners or shareholders have in the company after all debts have been settled. Equity increases with profits and investments but decreases with losses and withdrawals.
Categories in the Equity Tab
The Equity Tab includes different categories that help track ownership interests and retained earnings:
Expense
- These are withdrawals or distributions that reduce equity, often representing personal or non-business expenses.
- Example: Education, Financial Freedom, Giving, Long-term Savings, Necessities, Playing, Uncategorized Expense. Watch this video to learn more about each category in detail.
Income
- Represents revenue generated by the business, increasing equity.
- Example: Active Income, Passive Income, Uncategorized Income.
- Active income: Earnings from direct work, services, or business operations. (Example: A freelancer earns $5,000 from client projects, recorded as Active Income.)
- Passive income: Earnings that require minimal effort to maintain, such as investments or rental income. (Example: You receive $500 in dividends from stock investments, recorded as Passive Income.)
- Uncategorized income: Any income that doesn’t fit into predefined categories or hasn’t been categorized yet. (Example: You receive a $200 refund from an overpaid tax, temporarily recorded as Uncategorized Income until reassigned.)
Other Equity
- Covers additional equity accounts such as retained earnings, capital contributions, or adjustments.
- Example: Opening Balance. You start your business with $10,000 in your bank account. This amount is recorded as the Opening Balance in equity.
Tutorial: How to Add a New Account in the Equity Tab
Adding a new account in the Equity tab follows the same steps as in the Assets tab. However, the key difference is selecting the appropriate Account Type from the Equity category list. Ensure you choose the correct type to accurately track depreciation and offsets to equity accounts.