Chapter 16
Equity
Shareholders’ equity is the interest of the shareholders, or owners, in the assets of a company, and at any time is the cumulative net result of past transactions affecting this segment of the balance sheet. This equity is created initially by the owners’ investment in the company, and may be increased from time to time by additional investments, as well as by net earnings. It can be reduced by distributions of the equity to the owners (usually as dividends). Further, it may also decrease if the enterprise is unprofitable. When all liabilities are satisfied, the remainder belongs to the owners.
Basic accounting concepts govern the accounting for shareholders’ equity as a whole, for each class of shareholder, and for the various segments of the equity interest, such as capital stock, contributed capital, and earned capital. This chapter addresses such topics as the cost of capital, dividend policy, equity planning, and stock records.
Role of the Controller
The controller must properly account for the shareholders’ equity, providing those analyses and recommending those actions that are consistent with enhancing shareholder value over the long term. Specifically, these tasks must be performed:
- Accounting for shareholders’ equity in accordance with generally accepted accounting principles (GAAP). This includes the historical analysis of the source of the equity and the segregation of the cumulative equity by class of shareholder
- Preparing the appropriate reports ...
