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Stockholders' equity is an important heading in a corporate balance sheet. Let's begin the discussion of...

Stockholders' equity is an important heading in a corporate balance sheet. Let's begin the discussion of stockholders' equity by asking a question: How is the Stockholders' Equity section of a corporate balance sheet different from that in a single-owner business?

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Stockholders' Equity section of a corporate balance sheet is different from in a single-owner business. Major point of differences are -

1) In Single Owner Busines, That owner is only the shareholder which owns the business fully whereas in corporates there can be more than 1 share holders. Thus corporate balance sheet will show - number of shares (Common Stock) aurhorized; issued and outstanding along with par value per share

2) In corporate there can be many types of capital like Preference Capital & Common Stock whereas there is one type of capital (owner's capital) in single owner business

3) In single owned business, all drawings and income earened are adjusted into capital account only, whereas in corporate balance, we generally found an account "Retained Earnings" where all the net income which is not withdrawn (distributed) is accumulated or adjusted. Any dividends are paid from this account only.

4) Corporates can buy their stocks back and presented as "Treasury Stock", whereas in single owned business it is directly adjusted to owner's capital account

5) Corporate balance sheet can also have certain reserves, which will not be there in single owner's business.

Generally,
In Single Owner Business - Only Capital Account will be there which be carry forwarded to future years, whereas
In Corporates - This is bifurcated under many heads like - Common Stock, Preference Stock, Retained Earnings, Reserves, Treasury Stock, Etc.

ekkarill92 answered 1 year ago
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