Stockholders' Equity

Topics: Stock market, Stock, Generally Accepted Accounting Principles Pages: 3 (1077 words) Published: December 11, 2013
Shareholder’s Equity

Shareholder’s equity is the net assets of a corporation (Spiceland, 2011). There are two different types of shareholder’s equity: stockholder’s equity and owner’s equity. Shareholder’s equity pertains to corporations while owner’s equity pertains to sole proprietorship. Owners of a corporation are called stockholders or shareholders, because they own shares of the company's stock. Shareholder’s equity is the way of showing how much money a company uses is financed through shares of the company. The more money shareholders contribute to a company, the better a company will be able to operate. There are several reasons why people invest in companies. One reason is because he or she has a personal interest in the company and another is because he or she is investing money into the company in hopes of making a profit off of the sale of their shares. There are certain regulations that all companies must comply by that are set by the GAAP. Auditors are responsible for making sure companies are following these guidelines. Calculating shareholder’s equity is very important for both management and potential investors. Management needs to know how much money is being contributed into the company (Spiceland, 2011). Stock holders need to know if the company he or she is looking into is going to make a profit on the money they invest into a business. The most popular way to calculate shareholder’s equity is the simple equation, total assets minus the total liabilities. To find the figure that should be used for the amount of total assets, both long term and short term assets should be added together. Long term assets include equipment, property and capital assets that will be in used for many years. The current assets include receivables, work in process, inventory or cash. To compute the total liabilities, long-term and short-term liabilities are added together. Long-term liabilities are any debts that will require a repayment that may be longer...
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