Definition of Owner's Equity
Owner's equity is one of the three main sections of a sole proprietorship's balance sheet and one of the components of the accounting equation: Assets = Liabilities + Owner's Equity.
Owner's equity is viewed as a residual claim on the business assets because liabilities have a higher claim. Owner's equity can also be viewed (along with liabilities) as a source of the business assets.
Example of Owner's Equity
If a sole proprietorship's accounting records indicate assets of $100,000 and liabilities of $70,000, the amount of owner's equity is $30,000.
Due to the cost principle (and other accounting principles) the amount of owner's equity should not be considered to be the fair market value of the business.