Owners’ Equity Paper

Owners’ Equity Paper

University of Phoenix (ACC 423)

7th of July 2012

There are many differences between paid-in capital and earned income. Paid in capital this is the amount of money in the business that comes from the contributions to the business by investors that is gained by the sale stock. Earned capital is the amount of money that is accumulated through successful operation of a business. Both of these aspects of the business must be list on the balance sheet but keeping them separate is very important.

The first reason to keep these two separate is the way they must be reported. It is important on a balance sheet for the earned capital t be separate from the capital that comes from investments. The first reason is that potential investors will clearly see how much money is earned by the business through operations. This is important because no individual or business wants to invest in companies that cannot continue to operate without additional money contributions from outside parties. It is important to separate the two incomes so that the financial situation of the business can be view in the appropriate manner. It is important for the two to be separate so that the owners that operate the business can see the financial situation of the business without any misunderstandings.

This is way earn income should be kept separate from paid in capital because the numbers of the earned income is more important than the paid in capital numbers. This is because the amount of money earned from simply every day operations is more important than the help the business receives. The more earned income the business has, the better it is doing financially. Investors also see earned income as more important because that amounts to the more dividends or returns on their investment s that they will receive.

Since it is now known that earned income is more important to investors than paid in capital. It is important to see what else is important to...