Stockholders' equity accounts definition
/What are Stockholders’ Equity Accounts?
The stockholders' equity accounts are those general ledger accounts that express the monetary ownership interest in a business. In effect, these accounts contain the net difference between the recorded assets and liabilities of a company. If assets are greater than liabilities, then the equity accounts contain a positive balance; if not, they contain a negative balance. The stockholders' equity accounts normally have credit balances. The most common stockholders' equity accounts are noted below.
Common Stock
The common stock account contains that portion of the price paid by investors for a company's common stock that is attributable to the par value of the stock. If the par value amount per share is minimal (as is usually the case), the balance in this account is quite small. If the stock has no par value, then this account is not used.
Additional Paid-In Capital on Common Stock
The additional paid-in capital on common stock account contains the portion of the price paid by investors for a company's common stock that is attributable to the amount of the payment exceeding the par value of the stock.
Preferred Stock
The preferred stock account contains the portion of the price paid by investors for a company's preferred stock that is attributable to the par value of the stock.
Additional Paid-In Capital on Preferred Stock
The additional paid-in capital on preferred stock account contains the portion of the price paid by investors for a company's preferred stock that is attributable to the amount of the payment exceeding the par value of the stock.
Retained Earnings
The retained earnings account contains the cumulative net income earned by the company, less any dividends paid. This account changes the most during the year, since it is constantly being updated with any profits or losses generated by the business.
Treasury Stock
The treasury stock account contains the amount paid by the company to buy back shares from investors. This is a contra account, so the balance in the account is usually a debit, and offsets the other equity accounts.
Impact of Secondary Market Sales on Stockholders’ Equity Accounts
Note that the purchase and sale of stock between investors on a secondary market, such as a stock exchange, does not impact any of these accounts, since the issuing entity is not involved in these transactions. Instead, these transactions are between investors. The only case in which secondary market activity impacts these accounts is when a business buys back its own shares from investors.
Presentation of Stockholders’ Equity Accounts
The stockholders' equity accounts are located on the balance sheet immediately after the liability accounts, and so are found at the bottom of a vertical balance sheet. In a horizontal balance sheet, these accounts are located in the lower right corner of the presentation. These accounts may be aggregated into a smaller number of equity line items for display on the balance sheet.