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ForexCash10 05-25-2014 10:05 PM

balance sheet question
 
Why are accounts such as "Common Stock" and "Retained Earnings" listed under shareholders equity on the balance sheet? What is the meaning behind this?

Smile.ToMe 05-25-2014 10:05 PM

balance sheet question
 
Equity accounts represent the ownership interests in the company, as well as profit reinvested into the business. Common stock is one form of ownership interest in a company, and is created by individuals or other companies making investment into the business by providing cash or other assets. In trade for giving the company those assets, they receive partial ownership rights in form of shares of common stock. Unlike a loan from a bank (a liability), the cash or value of the assets do not have to be paid back. Instead, the stockholder expects a return either through a share of the profits (i.e. dividend), or through the growth in value of their stock (i.e. purchase at $10 a share, value increases to $15 per share).

Retained earnings is another form on investment into the company, only it comes from the profit of running the business. That profit can either be shared with the stockholders through a dividend, or reinvested into the business. When reinvested, it is known as Retained Earnings.

Happiness45 05-25-2014 10:05 PM

balance sheet question
 
Because they are equity accounts. They are neither assets nor liabilities.


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