Equity
Learn what equity is, how to calculate it and how Indonesian businesses report it on the balance sheet.
June 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Equity is what your business owns minus what it owes, and it shows the owners' stake in the business
- Sole proprietors, firma and CV partners hold owner's equity, while shareholders in a PT hold shareholder equity
- A PT needs positive retained earnings before it can pay dividends, and it must build a legal reserve from profit
- Most small businesses report equity on a simplified balance sheet under SAK EMKM, without a separate statement of changes in equity
What is equity?
Equity is the value left in your business after you subtract everything it owes from everything it owns. In Indonesian accounting, it's called ekuitas.
Put simply, equity equals your business assets minus your business liabilities. If your business has Rp500 million in assets and Rp200 million in liabilities, your equity is Rp300 million.
Picture selling everything the business owns at the value in your books, then paying off every debt. The money left over for you and any co-owners is your equity.
Types of equity
The word equity has several meanings beyond your own accounts. For your business, the type you hold depends on your legal structure, as Hukumonline explains in its guide to Indonesian business entities.
Owner's equity
Owner's equity applies to an usaha perseorangan (sole proprietorship), a firma (general partnership) or a CV (commanditaire vennootschap, or limited partnership). These structures aren't separate legal entities from their owners, so the equity belongs directly to the owner or partners.
That also means personal assets can be at risk for business debts. In a CV, active partners are liable up to their personal assets, while passive partners are liable only up to the capital they put in. You can read more about how owner's equity works for these structures.
Shareholder equity
Shareholder equity applies to a PT (perseroan terbatas, or limited liability company), including the single-founder PT Perorangan for micro and small businesses. A PT is a separate legal entity, so shareholders' liability is generally limited to the capital they contribute.
Shareholder equity is the money shareholders have paid for their shares plus profits the company has kept.
Home equity
Home equity is the market value of a property minus what you still owe on the home loan. If a house is worth Rp1 billion and the loan balance is Rp600 million, the homeowner has Rp400 million in equity.
Brand equity
Brand equity is the extra value a well-known, trusted name adds to a business. It's why customers might pay more for a familiar brand, even though it doesn't appear as a figure on most small business balance sheets.
Private equity
Private equity is money that investment firms or individual investors put into companies that aren't listed on a stock exchange. In return, they take an ownership stake and often expect a say in how the business grows.
Components of equity in a PT
If you run a PT, your equity splits into several parts defined by Indonesia's Company Law (UU No. 40 Tahun 2007 tentang Perseroan Terbatas, or UU PT). Knowing each part helps you read the equity section of your balance sheet.
These are the main components you'll see:
- Modal dasar (authorised capital) sets the most share capital your PT can issue
- Modal ditempatkan (issued capital) is the share capital shareholders have agreed to take up
- Modal disetor (paid-up capital) is the amount shareholders have actually paid in
- Saldo laba (retained earnings) is the profit the business has kept after dividends
- Cadangan (reserves) holds profit set aside under the mandatory reserve rule
The general rule under UU PT is a minimum authorised capital of Rp50 million, with at least 25% issued and paid up. However, Government Regulation 8 of 2021 (PP 8/2021) lets founders of a micro or small business PT set their own authorised capital. At least 25% of that amount must still be issued and paid up.
Pasal 70 of UU PT also requires every PT to set aside part of its net profit each year as a reserve. This continues until the reserve reaches at least 20% of issued and paid-up capital, and it applies only when retained earnings are positive.
How to calculate equity in business
You can work out equity in a few minutes once your records are up to date. The formula is: equity = total assets minus total liabilities.
Follow these steps to calculate it:
- List everything your business owns, using the values in your accounts
- List everything your business owes, such as loans and unpaid supplier bills
- Add up each list to get total assets and total liabilities
- Subtract total liabilities from total assets
Here's how that looks for a small design studio in Bandung. The studio has these assets:
- Rp80 million cash in the bank
- Rp60 million in computers and design equipment
- Rp45 million owed by clients for completed projects
- Rp15 million in office furniture
Total assets come to Rp200 million. The studio also has these liabilities:
- Rp70 million left on a bank loan
- Rp25 million in unpaid supplier bills
Total liabilities come to Rp95 million. The studio's equity is Rp200 million minus Rp95 million, which is Rp105 million.
Equity vs owner's equity vs net worth
These three terms all describe assets minus liabilities, so people often swap them. The difference is whose finances you're measuring.
Equity is the general term for any business. Owner's equity is the same figure for a business owned directly by one person or a partnership. Your net worth usually refers to an individual's total personal assets minus personal debts, which can include the equity you hold in your business.
Equity value also differs from enterprise value when a business is sold. Buyers usually start from enterprise value, the worth of the whole operating business, then subtract debt and add surplus cash. What's left is the equity value paid to the owners.
Equity financing vs debt financing
When your business needs money to grow, you can sell part of the ownership or borrow. Selling ownership is equity financing, while borrowing is debt financing.
The Corporate Finance Institute (CFI) sets out the main trade-offs:
- Equity financing brings in cash you don't have to repay
- Equity financing dilutes your ownership and offers no tax shield, as dividends aren't a deductible expense
- Debt financing lets you keep full ownership, and interest is generally tax-deductible
- Debt financing comes with fixed repayments, whatever your sales look like that month
You might use a mix of both, for example, a bank loan for equipment plus fresh capital from a new partner. Checking your gearing ratio shows how much of your business runs on debt compared with equity.
Why equity matters
Equity is one of the clearest signs of your business's financial health. It affects how lenders and investors see your business.
Here's why it's worth watching:
- Shows what the owners' stake is worth on paper
- Helps banks judge whether your business can take on more debt
- Gives potential investors a sense of stability before they commit
- Allows a PT to pay dividends, which Pasal 71(3) of UU PT permits only with positive retained earnings
- Tracks whether your business is building value over time
How equity changes
Equity moves when your business makes a profit or loss, and when owners put money in or take it out. Knowing what drives it helps you plan ahead.
These events increase equity:
- The business makes a profit and keeps it
- You or other owners put more money in
- A PT issues new shares to investors
- A lender writes off part of a debt you owe
These events reduce equity:
- The business makes a loss
- Owners take money out as drawings (prive)
- A PT pays dividends to shareholders
- Assets lose value, for example, stock you can't sell or invoices you can't collect
Where equity is recorded and how it's reported
Equity appears on your balance sheet, known in Indonesian standards as the laporan posisi keuangan (statement of financial position). It sits alongside assets and liabilities, so the two sides always balance.
Micro, small and medium enterprises (MSMEs) can report under SAK EMKM (Standar Akuntansi Keuangan Entitas Mikro, Kecil, dan Menengah). It requires only a statement of financial position, an income statement and notes. It explicitly leaves out a statement of changes in equity.
Most Indonesian businesses fall into the simplified reporting group: Kadin Indonesia reports that 99.70% of the country's 30.21 million non-agricultural MSMEs were micro businesses as at 31 December 2025.
Entities on full SAK must prepare a statement of changes in equity under PSAK 201 (Pernyataan Standar Akuntansi Keuangan 201). The Institute of Indonesian Chartered Accountants (IAI) has confirmed PSAK 118 will replace PSAK 201 from 1 January 2027.
In a PT, the equity section shows paid-up capital, reserves and retained earnings. An usaha perseorangan shows a simpler picture of owner's capital and drawings. This financial statement guide explains how each report fits together.
What is negative equity?
Negative equity means your liabilities are bigger than your assets. It usually builds up through repeated losses or owners drawing more than the business earns, and falling asset values can add to it.
Treat negative equity as a warning sign on your balance sheet. Negative equity by itself isn't the legal test for bankruptcy. It does show that creditors have more at stake in the business than its owners.
Directors of a PT have extra reasons to act early. Pasal 104(2) of UU PT covers a PT declared bankrupt because of a director's fault or negligence. If the bankruptcy estate can't cover its obligations, each director can be jointly liable for the shortfall.
Directors can defend themselves by showing they acted in good faith and with due care. They also need to show they had no conflict of interest and tried to prevent the bankruptcy. If your equity turns negative, speak to an accountant or legal adviser early.
How to build equity in your business
Building equity comes down to earning more than you spend and keeping more of it in the business. These steps give you a practical place to start:
- Increase profitability by reviewing your prices and costs, since higher profits you keep add straight to equity
- Reinvest profits in equipment or skills that help the business earn more
- Pay down expensive debt to cut interest costs, leaving more profit to grow equity
- Manage cash flow tightly by sending online invoices promptly and following up overdue payments
- Track your numbers regularly so you spot any drop in equity while it's still small
Every rupiah of profit you keep in the business lifts your equity, and that builds a stronger base for borrowing or selling later.
Track your business equity with Xero
Knowing your equity helps you plan borrowing, reward owners and spot trouble while there's time to act. With Xero, automated bank feeds keep your figures current, so your balance sheet shows up-to-date equity whenever you check it.
You can use Xero's reporting tools to see how profit and dividends move your equity each month. Try Xero and get one month free to start tracking it today.
FAQs on equity
These answers cover common questions Indonesian business owners have about equity.
What does Rp100 million in equity mean?
It means your business would have Rp100 million left for its owners if it sold its assets at book value and paid every debt. It's a figure from your accounts, so the price a buyer pays could be higher or lower.
What's the difference between equity and shares?
Shares are the units of ownership in a PT, while equity is the total value of the owners' claim on the business. If you hold 10% of the shares, you generally hold a claim on 10% of the equity.
How often should you calculate equity?
Check it monthly alongside your balance sheet, and always at the end of your financial year. Monthly checks show trends early, before a string of losses or drawings adds up.
Is equity the same as cash in the bank?
Equity and cash are separate figures, because equity includes equipment and money clients owe you. A business can show healthy equity and still run short of cash if most of its value is tied up in those assets.
How are dividends from equity taxed in Indonesia?
According to PwC Tax Summaries, resident individuals generally pay a 10% final tax on dividends from an Indonesian PT. The dividend can become tax-exempt if it's reinvested in Indonesia within a set period.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.