Final answer:
The change in equity of a business represents the financial performance of the entity, reflecting the increase or decrease in the value of its assets minus liabilities. It excludes changes resulting from investments by or distributions to owners.
Step-by-step explanation:
In the context of business, the change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources is a measure of the financial performance of the business. It reflects the increase or decrease in the value of the business's assets, such as cash, inventory, and property, minus its liabilities, such as loans and accounts payable. It includes all changes in equity during a period except those resulting from investments by owners and distribution to owners.
For example, if a business sells its products and earns revenue, the change in equity will increase as the company's assets (cash or accounts receivable) increase. On the other hand, if the business incurs expenses or pays off its debts, the change in equity will decrease as the company's liabilities increase.
Overall, the change in equity is an important indicator of the financial health and performance of a business.