Question

A. Define “investments by owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by owner investments?

B. Define “distributions to owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by distributions?

Answer 1

Investments by owner - Investments by owner can be understood by breaking them

Investment meaning - putting money into something for future returns.

Owner = the one who owns

Thus investment by owner means that the money is invested by the owner into the organisation or company for better returns.

It is the amount of assets or capital that the owner of the company puts into the company.Thus what all assets that are put in the company by the owner(s) is investment by owners.

It is represented as the capital account.

For example : Say a person named John forms a company and invests $ 100000 plus the furniture and fixtures as well as his personal computer into the company.

Thus cash, furniture and computer are his assets and thus investment by owner.

Every other line item can be affected by the owner investment in which he invests.

Say , the car of the company taken by the assessee or the assessee car put into the company.

Thus any asset can be affected by the owner depending on the circumstances and case to case basis except where it is prohibited under some regulation or by law.

distributions to owners is just opposite of investment by owner. Thus here the owner takes back what he has invested either partly or fully. Normally the distribution takes place in the form of dividends or the retained earnings are taken back by the owner.Thus the retained earnings earned by the company when taken back by the owner, it is know as distribution to owners.

Example - Dividend distribution, profit sharing, taking retained earnings by the owners.

It affects the reduction of equity and assets of the company , The distribution normally takes place in the form of cash such as dividends , retained earnings.

Thus apart from equity, it basically affects the cash as well as reserves with the company.