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The Corporate Finance Institute Accounting
Shareholder’s Equity
Stockholders Equity (also known as Shareholders Equity) is an
To learn more, please account on a company’s balance sheet that consists of share
check out our free online capital plus retained earnings. It also represents the residual value of
accounting courses
assets minus liabilities. By rearranging the original accounting equation,
Assets = Liabilities + Stockholders Equity, it can also be expressed as:
View courses Stockholders Equity = Assets – Liabilities.
Stockholders Equity provides highly useful information when looking
at financial statements. In events of liquidation, equity holders are
generally later in line than debt holders to receive their payments. This
means that bondholders are paid before equity holders. Therefore,
debt holders are not very interested in the specifics of equity beyond
the general amount of equity to determine overall solvency. Equity
holders, however, are concerned with both liabilities and equity
accounts because equity holders can only be paid after bondholders
have been paid.
Components of Stockholders Equity
Equity can be separated into two major components:
1. Contributed Capital – Amounts received by the reporting entity from
transactions with its owners are referred to as contributed capital
2. Retained Earnings – Amounts earned through income are referred
to as Retained Earnings and Accumulated Other Comprehensive
Income (for IFRS only). For more on Retained Earnings, please click
the link below.
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