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Stockholders' Equity Accounts

Equity refers to the residual interest of the owners in the assets of a company after all liabilities are
In other words, equity is equal to assets minus liabilities.
The term used for equity depends upon the form of business organization.
1. For sole proprietorships, it is known as owner's equity.
2. For partnerships, it is called partners' equity.
3. For corporations, we use stockholders' equity.
Stockholders' equity represents the portion of total assets that is left to the stockholders of a corporation
after all of its liabilities are paid.
Stockholders' equity (SHE) has 3 major components: Capital Stock, Retained Earnings, and Treasury
SHE = Capital Stock + Reserves + Retained Earnings - Treasury Stock
Capital Stock or Share Capital represents contributions from stockholders gathered through the issuance
of stocks. Retained Earnings or Accumulated Profits represents company earnings from the time it started
minus dividends distributed, and after considering other adjustments. Treasury Stocks are shares issued
by the company and were later re-acquired. The cost of treasury stocks is deducted from stockholders'
A fourth component is known as Reserves. If a corporation has reserves, it is normally presented after
Capital Stock and before Retained Earnings in the balance sheet. Reserves include unrealized gains and
losses, appropriations, and additional paid-in capital.
Here is a list of stockholders' equity accounts.

Capital Stock / Share Capital

1. Common Stock - also known as Ordinary Shares. It represents ownership in a corporation. Common
stockholders are given rights to receive dividends and voting rights in electing a board of directors.

2. Preferred Stock - also known as Preference Shares. Preferred stockholders enjoy fixed dividend rates
and are paid first before the common stockholders. Preferred stocks normally do not possess voting
rights, unless stated.

3. Subscribed Capital Stock - common or preferred stocks subscribed but not yet paid, hence not yet


1. Additional Paid-in Capital - also known as Share Premium; contribution from stockholders in excess
of the par or stated value of the stocks issued

2. Unrealized Gains and Losses - gains and losses that cannot be included in the income statement as
per accounting standards, such as Unrealized Gain/Loss on Financial Assets and Unrealized Gain/Loss
on Translation Adjustment

3. Revaluation Surplus - increase in the value of a fixed asset after an appropriate appraisal

4. Retained Earnings Appropriated - company's earnings set aside for a specific purpose (such
as Retained Earnings Appropriated for Plant Expansion), hence cannot be distributed as dividends to the

Retained Earnings
The Retained Earnings account represents the accumulated earnings of the business from the time it first
started. It is also known as Accumulated Profits. The amount presented in the balance sheet at the end of
the year is computed using this formula: Retained Earnings at the beginning of the year (after
adjustments, if any) plus net income, minus appropriations made for specific purposes, and minus
dividends declared during the year.

Treasury Stock
Treasury stocks are shares of the corporation that have been issued and then were reacquired but not
cancelled. In the balance sheet, the cost of treasury stock is shown as a deduction to Stockholders'