Crash Course in Accounting and Financial Statement Analysis, Second Edition

Introduction

Shareholders’ equity (SE) represents monetary contributions of a company’s equity (stock) owners, in addition to income from the course of operations (Exhibit 6.20). Along with liabilities, SE forms another major source of funding for companies. Shareholders’ equity represents the residual value (net worth) of assets by the shareholders following the repayment of liabilities: Assets – Liabilities = SE.

Exhibit 6.20. Shareholders’ Equity Represents Another Major Source of Funds Via Issuance of Equity and Operations

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable			$ 1,717	2,086
	Accrued compensation			1,339	1,662
	Income taxes			3,478	2,020
	Short-term unearned revenue			6,514	7,502
	Other			1,921	3,607
		Total current liabilities		14,969	16,877
Long-term unearned revenue				1,663	1,665
Other long-term liabilities				2,911	4,158
Commitments and contingencies
Stockholders’ equity:
	Common stock and paid-in capital - shares authorized 24,000; outstanding 10,862 and 10,710			56,396	60,413
	Retained earnings (deficit), including accumulated other comprehensive income of $1,119 and $1,426			18,429	(12,298)
		Total stockholders’ equity		74,825	48,115
			Total liabilities and stockholders’ equity	$94,368	$ 70,815

Source: Used with permission. Microsoft 2005 Annual Report.

SE usually consists of:

• Common Stock and additional Paid-In Capital

• Preferred Stock

• Treasury Stock