Basic Accounting - Equity

Equity, or the amount invested into a company comes in three forms:

1.      Paid in Capital: funds paid out of pocket for the firm.

2.      Dividends: distributed profits to shareholders.

3.      Retained Earnings: profits kept in the firm.

Owners’ equity for the most part is a residual amount. It is the following:

$ Equity=Paid In Capital+Stock+Retained Earnings_{t-1}+Revenue-Expenses-Dividends $

Usually, market value is greater than book value.

Some other terms:

1.      Treasury Stock Purchase: owners sell their shares back to the company (buyback).

2.      Accumulated Comprehensive Income: other things like equity of foreign subsidiaries, value of investment securities, value of derivatives.

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