Owners’ equity, funds given to the firm by its owners plus cumulated earnings retained by the firm, is the final category in the Balance Sheet equation:
Assets = Liabilities + Owners’ Equity
Like many prior chapters, the owners’ equity chapter has lots of terminology. However, once you understand the terminology, the accounting choices explained in this chapter will hopefully feel straightforward.
The nature of a firm’s ownership and control is set out in its corporate charter (or articles of incorporation), which in the United States is governed by state law. Corporations can incorporate in any state whether they have business operations in the state or not. Most U.S. public firms (over half of all ...