Owners Equity

Owners’ Equity Paper

Acc/423

April 1, 2013

Owners’ Equity Paper

Corporation’s issues stock as a way to build their business. Investors choose to purchase stock as a way to increase their net worth. This is a codependent relationship. Corporations depend on the sale of stock to fund the operation of the company. Investors depend on the leadership of the corporation to make decisions that will bring in a good rate of return. If the company does not create a profit for the investor, they are likely to lose them. The greater rate of return the happier the investor, which will in turn encourage continued investment as well and new investors.

Owners equity is the residual interest in the assets of the enterprise after deduction all liabilities. Basically owner’s equity is the business owner’s share of its assets. Businesses assets are placed in two categories, liabilities and owners equity. Liabilities represent the portion of the business assets owed to someone other than the owner. Equity represents the value of the company’s assets the owner can claim. Assets equal equity plus liabilities are the equation that tells of how much of the company’s assets belong to whom.

The money invested in a company by the owners and stockholders is outline in the balance sheet under paid-in capital, which represents the owner’s investments, and earned capital, which represents the net income to be reinvested in the company. Should a company have more than one owner, all of which invested capital, each owner investment will be kept in separate paid-in capital accounts. This is because each owner’s contributions may not be equal which will represent their percentage of ownership. Earned capital is the net profits of a company. Earned capital can be reinvested into the company or split among the company’s owners. Keeping paid-in capital and earned capital separate, helps investors to see how the company is run. Keeping it separate will allow investors to make...