In a balance sheet, members' equity equals?

• A. Difference between assets and liabilities; minimum 2-5% of gross assessments (10-15% being very good).
• B. A separate income stream generated by investments.
• C. The total amount of annual fees collected.
• D. The total liabilities of the association.

Answer: (A)

Equity on a balance sheet represents the owners’ residual interest after all debts are paid. For a community association, members’ equity is simply the difference between what the association owns (assets) and what it owes (liabilities). This difference is the association’s net worth or net assets and shows the amount available to the members after obligations are settled. It isn’t an income stream from investments, it isn’t the total annual fees collected, and it isn’t the total liabilities. Some practitioners reference a benchmarking range of equity as a percentage of gross assessments to gauge financial strength, but the defining concept remains assets minus liabilities.