Financial Accounting For Dummies

Chapter 9

Letting Owners Know Where They Stand: The Equity Section

In This Chapter

Meeting the three types of business entities

Learning about paid-in capital and retained earnings

Understanding how corporations pay their investors

Preparing the equity section of the balance sheet

Part III of this book is all about the financial statement called the balance sheet, which reports a company’s assets, the claims against those assets, and owners’ equity. In Chapter 7, I walk you through the assets part of the equation. Chapter 8 is all about the liabilities part of the balance sheet.

This chapter gets into the nitty-gritty of how the owners’ interest in the business shows up on the balance sheet. Equity is the combined total of each and every owner’s investment in the business. Another term for equity is net assets, which is the difference between assets (resources a company owns) and liabilities (claims against the company).

Depending on how a business is organized, its owners’ equity can appear in a few different types of accounts on the balance sheet. The three types of business entities ...