Technical definition
The residual interest in an entity's assets after deducting all liabilities.
How it works
Equity changes through owner contributions, distributions and accumulated profit or loss. It is a claim on net assets, not a separate pile of cash. Its composition depends on legal form and reporting framework.
Everyday example
If assets equal $120,000 and liabilities $70,000, total equity is $50,000.
Common pitfall
Retained earnings and equity do not tell you how much cash is available.