{"id":154,"date":"2018-04-16T20:54:01","date_gmt":"2018-04-16T20:54:01","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&p=154"},"modified":"2024-04-26T22:18:53","modified_gmt":"2024-04-26T22:18:53","slug":"reporting-stockholders-equity","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/reporting-stockholders-equity\/","title":{"raw":"Reporting Stockholder Equity","rendered":"Reporting Stockholder Equity"},"content":{"raw":"
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Learning Outcomes<\/h3>\r\nDescribe the presentation of stockholder's equity on the balance sheet and statement of owners' equity\r\n\r\n<\/div>\r\nYou have learned that the accounting equation is presented as Assets = Liabilities + Equity. Let us take a closer look at the Equity portion of that equation and how it is presented on the Balance Sheet and the Statement of Owners' Equity.\r\n\r\nStockholders\u2019 Equity\u00a0(also known as\u00a0Shareholders Equity) is an account on a company's\u00a0balance sheet\u00a0that consists of capital\u00a0plus retained earnings. When the business is not a corporation and therefore has no stockholders, the equity account will be reflected as Owners' Equity on the balance sheet.\r\n\r\nIn short, the Equity portion of the accounting equation is the amount left over after liabilities are deducted from assets and represents the residual value of assets minus liabilities.\u00a0Owner's or stockholders' equity also reports the amounts invested into the company by the owners plus the cumulative net income of the company that has not been withdrawn or distributed to the owners. When there are shareholders this distribution comes in the form of dividends. Let's look at the expanded accounting equation to clarify what constitutes Owners' or Shareholders' Equity before we examine its presentation on the Balance Sheet and Statement of Owners' Equity.\r\n\r\nFor a corporation with shareholders the accounting equation is:\r\n

Assets = Liabilities + Paid-in Capital + Revenues \u2013 Expenses \u2013 Dividends \u2013 Treasury Stock<\/p>\r\nFor a sole proprietorship or a company without shareholders the accounting equation expands to be:\r\n

Assets = Liabilities + Owner's Capital + Revenues \u2013 Expenses \u2013 Owner's Draws<\/p>\r\nAs you can see, Equity includes several components regardless of the type of business.\r\n\r\nThe figure below is an example of how Equity is reported on the Balance Sheet of a corporation when stock has been issued.\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Company A<\/td>\r\n<\/tr>\r\n
Balance Sheet<\/td>\r\n<\/tr>\r\n
Stockholders' Equity<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPaid in Capital<\/td>\r\n\u00a0$\u00a0\u00a0 2,500,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPreferred Stock<\/td>\r\n\u00a0$\u00a0\u00a0 2,500,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCommon Stock<\/td>\r\n\u00a0$\u00a0\u00a0 4,500,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPaid-in capital I excess of par value - preferred<\/td>\r\n\u00a0$\u00a0\u00a0 1,550,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPaid-in capital in excess of par - common stock<\/td>\r\n\u00a0$\u00a0\u00a0 2,850,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPaid-in capital from treasury stock<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 952,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nRetained Earnings (Revenues - Expenses)<\/td>\r\n\u00a0$\u00a0\u00a0 2,458,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nAccumulated other comprehensive income<\/td>\r\n\u00a0$\u00a0\u00a0 3,525,000<\/span><\/td>\r\n\u00a0$ 20,835,000<\/span><\/td>\r\n<\/tr>\r\n
<\/td>\r\nLess: Treasury Stock<\/td>\r\n\u00a0$\u00a0\u00a0 2,895,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nTotal stockholder's equity<\/td>\r\n<\/td>\r\n\u00a0$ 17,940,000<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nFor a company that has not issued stock and is privately held, the statement of equity on the balance sheet will be presented as follows:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Company A<\/td>\r\n<\/tr>\r\n
Balance Sheet<\/td>\r\n<\/tr>\r\n
<\/td>\r\nOwner's Equity<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nBeginning owners' equity<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 245,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n+ Owners capital investments<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 27,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n+ Gross Revenue<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 258,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n- Expenses<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 189,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n- Owners'\u00a0 withdrawals<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 56,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nTotal Owner's Equity<\/td>\r\n<\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 285,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWhat both statements have in common is that they include the net income information from the company's income statement! Remember, equity is simply the difference between the company's assets and the liabilities the company has taken out against those assets.\r\n
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practice questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/77b20f12-3b27-4033-b375-d686950b4fe4\r\n<\/div>","rendered":"
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Learning Outcomes<\/h3>\n

Describe the presentation of stockholder’s equity on the balance sheet and statement of owners’ equity<\/p>\n<\/div>\n

You have learned that the accounting equation is presented as Assets = Liabilities + Equity. Let us take a closer look at the Equity portion of that equation and how it is presented on the Balance Sheet and the Statement of Owners’ Equity.<\/p>\n

Stockholders\u2019 Equity\u00a0(also known as\u00a0Shareholders Equity) is an account on a company’s\u00a0balance sheet\u00a0that consists of capital\u00a0plus retained earnings. When the business is not a corporation and therefore has no stockholders, the equity account will be reflected as Owners’ Equity on the balance sheet.<\/p>\n

In short, the Equity portion of the accounting equation is the amount left over after liabilities are deducted from assets and represents the residual value of assets minus liabilities.\u00a0Owner’s or stockholders’ equity also reports the amounts invested into the company by the owners plus the cumulative net income of the company that has not been withdrawn or distributed to the owners. When there are shareholders this distribution comes in the form of dividends. Let’s look at the expanded accounting equation to clarify what constitutes Owners’ or Shareholders’ Equity before we examine its presentation on the Balance Sheet and Statement of Owners’ Equity.<\/p>\n

For a corporation with shareholders the accounting equation is:<\/p>\n

Assets = Liabilities + Paid-in Capital + Revenues \u2013 Expenses \u2013 Dividends \u2013 Treasury Stock<\/p>\n

For a sole proprietorship or a company without shareholders the accounting equation expands to be:<\/p>\n

Assets = Liabilities + Owner’s Capital + Revenues \u2013 Expenses \u2013 Owner’s Draws<\/p>\n

As you can see, Equity includes several components regardless of the type of business.<\/p>\n

The figure below is an example of how Equity is reported on the Balance Sheet of a corporation when stock has been issued.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Company A<\/td>\n<\/tr>\n
Balance Sheet<\/td>\n<\/tr>\n
Stockholders’ Equity<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPaid in Capital<\/td>\n\u00a0$\u00a0\u00a0 2,500,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPreferred Stock<\/td>\n\u00a0$\u00a0\u00a0 2,500,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nCommon Stock<\/td>\n\u00a0$\u00a0\u00a0 4,500,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPaid-in capital I excess of par value – preferred<\/td>\n\u00a0$\u00a0\u00a0 1,550,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPaid-in capital in excess of par – common stock<\/td>\n\u00a0$\u00a0\u00a0 2,850,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPaid-in capital from treasury stock<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 952,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nRetained Earnings (Revenues – Expenses)<\/td>\n\u00a0$\u00a0\u00a0 2,458,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nAccumulated other comprehensive income<\/td>\n\u00a0$\u00a0\u00a0 3,525,000<\/span><\/td>\n\u00a0$ 20,835,000<\/span><\/td>\n<\/tr>\n
<\/td>\nLess: Treasury Stock<\/td>\n\u00a0$\u00a0\u00a0 2,895,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nTotal stockholder’s equity<\/td>\n<\/td>\n\u00a0$ 17,940,000<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

For a company that has not issued stock and is privately held, the statement of equity on the balance sheet will be presented as follows:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Company A<\/td>\n<\/tr>\n
Balance Sheet<\/td>\n<\/tr>\n
<\/td>\nOwner’s Equity<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nBeginning owners’ equity<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 245,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n+ Owners capital investments<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 27,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n+ Gross Revenue<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 258,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n– Expenses<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 189,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n– Owners’\u00a0 withdrawals<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 56,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nTotal Owner’s Equity<\/td>\n<\/td>\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 285,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What both statements have in common is that they include the net income information from the company’s income statement! Remember, equity is simply the difference between the company’s assets and the liabilities the company has taken out against those assets.<\/p>\n

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practice questions<\/h3>\n

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