Question

Accounting for owners equity in a sole proprietorship or partnership is relatively simple—just one account per owner for all items of owners equity—whereas accounting for stockholders equity in a corporation is so much more complex. Why do you think this is true?

Answer 1

No, it is not true that maintenance of the owners equity is simple and the accounting for stockholders equity under corporation is a complex phenomena, but it is equally simple because

1) under the sole proprietorship and partnership, we do not issue any shares against the money invested in business/firm, but we account the total money so invested for each owner.

2) under the corporation to make the things simple, the company issues the shares against the investment made in the company. So, company have to take care and account for the group of shares it had issued to investors. No separate account of each owner is maintained.

3) Like, in sole-proprietorship and partnership, the title for ownership can be transferred from one owner to another on retirement or death of the owner, the shares of the corporation also transferred to other owner, rather frequently in the secondary market.

4) The corporation have to maintain the records of total shareholders of the company through updating the owners register periodically.

5) The dividend entry is being made once and separate dividend checks are distributed to each shareholder as per their share-holding.

6) the book value of stockholders’ Equity is calculated through adding the Retained earnings to the Paid in capital by the shareholders.

Thus, it is equivalent simple in the case of corporation to take care of the stakeholder’s equity as in case of sole-proprietorship and partnership.

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