Accounting All-in-One For Dummies

Chapter 5

Explaining Ownership in the Equity Section of the Balance Sheet

In This Chapter

Meeting the three types of business entities and two types of stock ownership

Investigating paid-in capital and retained earnings

Checking out reductions in stockholder's equity

Understanding how corporations pay their investors

This chapter gets into the nitty-gritty of how the owners’ interest in the business shows up on the balance sheet. Equity (also referred to as net assets) is the combined total of each owner's investment in the business. Both terms refer to the difference between assets (resources a company owns) and liabilities (claims against the company).

Understanding How Owner Equity Varies among Business Entities

Depending on the type of business entity, the owners’ equity section of the balance sheet can range from bare-boned to quite elaborate, as explained in the following sections. For more about different business entities in general and the pros and cons of each, check out Book VI, Chapter 2.

Sole proprietorship

Sole proprietorships (one-owner businesses) have an equity ...