Question

What are the accounts that make up Shareholder’s Equity on the Balance Sheet?

Answer 1

Shareholder’s Equity
The Shareholder's Equity in the balance sheet consists of the total amount invested by shareholders in the company in exchange for stock, any donated capital or retained earnings. Shareholder's Equity on the balance shows the total amount of assets that the investors will own after the debts and liabilities are paid off. It includes the amount invested to get the stock, retained earnings or any donated capital. The stockholders' equity accounts contain those accounts that specify the monetary interest in a business. These accounts contain a net difference between the assets and liabilities of a business. If the assets are more than liabilities, then the equity accounts contain a positive balance; if not, they contain a negative balance. The stockholders' equity accounts commonly have credit balances.

There are two calculations for stockholders' equity:

Shareholders' Equity = total assets - total liabilities

Shareholders' Equity = share capital + retained earnings – treasury shares

Accounts that makeup Shareholders' equity accounts are as follows:

Preferred Stock
Preferred stock also known as hybrid instrument contains characteristics of both debts as well as an equity instrument. It means that holder of such stock is entitled to fixed dividend and priority of payment these instruments take over of ordinary share dividend

Common Stock
The term "common stock" indicates that the investors within the company don't own any explicit assets, however, all of the assets are the shared, or common, the property of all investors. An organization could issue both the common stock as well as preferred stock, within which the preferred shareholders have priority to receive dividends.

Additional paid-in capital on common stock
It contains the portion of the value paid by investors for a company's ordinary shares that's as a result of the quantity of the payment is more than the par value of the stock.

Additional paid-in capital on preferred stock
It means the part of the value paid by the investors for the preferred share of the company that's as a result of the quantity of the payment is more than the par value of the preferred stock.

Retained Earnings
Retained earnings (RE) is that the quantity of profit left over for the business when it's paid out dividends to its shareholders. Usually, this profit is paid intent on shareholders, however, it also can be re-invested into the corporate for growth functions. The money not paid to shareholders counts as preserved or retained earnings.

Treasury Stock
It contains that amount that is paid by the corporate to buy back shares from investors. Treasury Stock offsets the other shareholders' account balance because the balance treasury stock always has a negative balance in the balance sheet.