Equity in the balance sheet

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2018-04-02 20:00:09

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Equity in the balance sheet reflects the receipt of such funds, as the contributions of shareholders, the additional capital and profit. Its size can constantly change. At the initial stage, when the firm is formed, it has a single source of financing-the contributions of the founders.

Consider equity in the balance sheet for example, one of the most difficult forms – AO. At joint stock companies, there is an additional source of equity. It is not available, LLC, IP and other forms. AO has the right to issue shares. The Charter of the company pre-negotiated the amount for which it can create these securities. But usually AO not issuing shares at that value immediately. The balance shows the amount by which the share capital already paid. As soon as there is the issue of new shares, the book value of capital increased by the amount of the nominal value. But not always there is a growth of that amount. Equity in the balance sheet is reduced when the company starts repurchasing its own shares. The amount reported under liabilities. Shareholders invest in the shares, or give loan. But investors are co-owners of the company. Shareholder has the full right to resell the securities, but may not return to the organization.

Thus, the sources of own funds in the balance sheet are reflected in the section “liabilities”. Consider what revenues not related to commercial activity, can be the company.

  • Share premium-the difference between the stock price and the price at which it was implemented;
  • Additional paid-in capital-the amount that the firm receives from selling assets at an inflated price or from the acquisition of the assets of another company at a lower cost;
  • Random donation in any form: property, cash and other.

Equity in the balance sheet also reflects part of the profit of the organization. When the JSC receives net income that pays him a dividend to its investors. Profit  after that, it goes to increase the capital.

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Still reflected As equity in the balance sheet? The string ‘capital Reserve” specifies the amount of retained earnings, which is designed to target costs. The company must create such reserves. In this case, the tax law provides a number of benefits. Reserves made out of profits. Funds from this article, go to renewal of fixed capital, to cover various damages, losses, etc. the amount of the provision is determined by management and depends on the situation in the organization at the moment. That is, if in the near future the company may incur certain losses in connection with some risks, the founders decide to allocate a certain amount for hedging.

A Section “equity” shall also include the following lines of the balance sheet:

  • Additional paid-in capital. This reflects the value of the assets, which the organization got free of charge. If the firm buys the shares for a price above par, the difference also applies in this section of the balance sheet;
  • Retained earnings. This is income that the company received since the beginning of its activities, minus dividends, losses, various costs of capital;
  • Adjustment-revaluation of assets. The amount of the increase or decrease in the value of assets owned by the company;
  • Exchange differences on transactions related to the purchase or sale of foreign currency;
  • A set of expenses and income. This account opened on time. It contains the sum of all profits and costs to translate them into string "Net profit" or "retained earnings”.

The cost of equity is indicated in the third section of the balance sheet. The bigger it is, the more stable the situation of the company.


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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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