There are several types of accounts used to record shareholders’ equity. Each one is used to store different information about the interests of owners in a business. The types of equity accounts differ, depending on whether a business is organized as a corporation or a partnership. The equity accounts are noted below.
Types of Equity Accounts for Corporations
Additional paid-in capital. This account accumulates the additional amount that investors pay for shares sold by a corporation above their par value. Since par value is usually quite low, the balance in this account can be much higher than the balance in the common stock account.
Treasury stock. This account contains the amounts paid to buy back shares from investors. It contains a negative balance, so it offsets the amounts in the other accounts.
If a corporation has also issued preferred stock, then there may be additional accounts to separately track this information. For example, there may be a "preferred stock" account and an "additional paid-in capital - preferred stock" account. These shares are usually paid a dividend, which may be cumulative.
The board of directors may also set up an equity reserve account, in which they park funds that are intended for a certain purpose, such as the construction of a fixed asset. There is no organizational or legal basis for such a reserve account; it simply indicates the intent of the board regarding how retained earnings may be used in the future.
Types of Equity Accounts for Partnerships
Capital. This account contains the amount of funds contributed to a partnership by its partners.
Drawings. This account contains the cumulative amount of funds withdrawn from a business by its partners for their personal use.