I Own What? Travel Professionals and Owner’s Equity

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A long time ago in a galaxy far, far away – in Montana’s Bridger Mountains just north of Bozeman

Understanding Owner’s Equity requires just a little math.

…the horror…the horror

I know, I know the only thing more painful than accounting is math.

No one ever really believes me on this one, but it really is true: you in no way have to be good at math to really know your accounting.

To fully understand accounting, you just need basic addition, subtraction, and division…

and…

one basic equation.

Just one.

It’s called – simply enough – the accounting equation.

Asset = Liabilities + Owners Equity

If you understand this equation, you’ll understand the exact value of your travel business.

If you haven’t read AccountantSea before, check out these posts on Assets and Liabilities.

How does the accounting equation illustrate equity?

Owner’s equity is your claim, as an owner, on the assets of your business.

Never forget, even if you are a sole proprietor, you and your business are separate entities – don’t forget to treat them as such!

The exact dollar amount of Owner’s Equity can be easily figured by subtracting Liabilities from Assets

Owner’s Equity = Assets – Liabilities

Extremely simple algebra – a 3rd grader could handle it!

It’s also important to realize that as an owner, the claims of your creditors come before your own, which is why you subtract liabilities from assets and not the other way around.

It’s also important to realize that Owner’s Equity is not necessarily equal to cash, as your assets may be made up of items other than just cash.

Let’s say your business has $100,000 in assets and $45,000 in liabilities.

Assets = Liabilities + Owner’s Equity

$100,000 = $45,000 + Owner’s Equity

$100,000 – $45,000 = Owner’s Equity

$55,000 = Owner’s Equity

Simple, isn’t it? And no hard core math of any sort!

Let’s review:

What is Owner’s Equity?

Owner’s equity is your claim, as an owner, on the assets of your business.

A little deeper:

What is a liability?

A liability is an obligation of an organization that will likely result in the transfer of assets to another party. A liability is at its most basic a debt.

What is an asset?

A thing that you control that brings value now and in the future.

And deeper still:

What is accounting?

Accounting is a system for tracking and reporting the results and activities of an organization…no more, no less.

Just relax, do some simple math, and calculate your Owner’s Equity!

The Travelers Guide to Tax Deductions, get it just for signing up!

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