What is the Difference between Equity, Debt and Deficit
Financial terms are normally much confusing for an ordinary person especially who do not belong to economics field. Equity, debt and deficit are such financial terms that are no doubt, very common in our daily life. However, there are only a limited number of persons, who know exactly the meaning of these different terms. Here is a detailed description of these different finance terms.
Equity
Equity is a finance term that shows the interest of assets that a junior investor class claims after paying the liabilities or you can say equity, the residual claim as well. Equity could be negative in case of exceeding liabilities than assets. In fact, the base of equity is related to trade of stock shares that could be purchased by a company or even an individual.
Debt
When a debater has a loan from creditor, generally in the form of assets owed, this loan is called debt. Sometimes, the term debt is used symbolically to wrap moral compulsions that are without the involvement of economical value. In fact, without agreeing of creditor, who lends assets or money to debtor, a debt is not an applicable term.
Deficit
The simple and clear definition of deficit is that, when the receipts that a government receives in the form of taxes become less as compared to expenditure of government, the situation is called deficit. Now, it depends upon government that in what way, it fulfills this deficit means by borrowing through bank or from any other source.
Equity vs Debt vs Deficit
Equity means ownership, while Debt represents an obligation. In fact, a company can raise capital by using the two means that are equity & debt. On the other hand, Deficit is the amount that a country (or company) loses each year. Similarly, when a provider of capital loans money to a user of capital, it’s a debt transaction. When he owns a portion of the user of capital, it’s an equity transaction. On the contrary, when the government runs a deficit, then it must borrow money to make up the difference.
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