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 6, Chapter 2.
Sole proprietorship
Sole proprietorships (one-owner businesses) have an equity ...
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