What type of account is used to track the owner's equity?

The capital account is specifically designed to track the owner's equity within a business. Owner's equity represents the net value of the owner's interest in the business after all liabilities have been deducted from the assets. Essentially, it reflects the amount that would remain for the owner if all assets were liquidated and all debts paid.

In the accounting equation, which is Assets = Liabilities + Owner’s Equity, the capital account plays a fundamental role. It accumulates contributions made by the owner, retains earnings from profitable operations, and accounts for withdrawals made by the owner. Understanding this relationship helps clarify how personal investments and retained profits add to the overall equity of the business.

Comparatively, asset accounts track the resources owned by the business, liabilities accounts record the obligations owed to external parties, and revenue accounts capture income generated from operational activities. While all these accounts are integral to financial reporting, the capital account is the one dedicated to capturing changes and calculations pertinent to the owner's equity in the business.