The chapter focuses on the expansion of corporate capital through the issuance of shares and the contraction caused by the retirement of shares or the purchase of treasury shares and concludes with a discussion of cash dividends, property dividends, stock dividends, and stock splits. | Chapter 18 Shareholders’ Equity Chapter 18: Shareholders’ Equity Shareholders’ equity represents the owners’ residual claim on the assets of the corporation. Chapter 18 distinguishes between the two basic sources of shareholders’ equity: (1) invested capital and (2) earned capital. The chapter focuses on the expansion of corporate capital through the issuance of shares and the contraction caused by the retirement of shares or the purchase of treasury shares and concludes with a discussion of cash dividends, property dividends, stock dividends, and stock splits. The Nature of Shareholders’ Equity Assets – Liabilities = Shareholders’ Equity Shareholders’ Equity Paid-in Capital Retained Earnings Amounts earned by corporation Amounts invested by shareholders Accumulated Other Comprehensive Income Other gains and losses not included in net income Sources of Shareholders’ Equity Net Assets Shareholders’ equity accounts represent the ownership interests of the shareholders in a corporation. From the balance sheet, total shareholders’ equity equals total assets minus total liabilities. Another way to think about shareholders’ equity is that it represents the portion of a corporation’s assets that have been financed by the owners as opposed to that portion that has been financed by creditors. Corporations have two primary sources of equity: amounts invested by shareholders and amounts earned by the corporation. Paid-in capital represents amounts that shareholders have invested by buying shares of stock from the company. The retained earnings account reports the cumulative amount of net income the corporation has earned since its organization less the cumulative amount of dividends declared since organization. This is the portion of the net income that has been reinvested in the business rather than distributed to the owners in dividends. Accumulated other comprehensive income (AOCI) includes all changes in equity except those resulting from investments by owners and . | Chapter 18 Shareholders’ Equity Chapter 18: Shareholders’ Equity Shareholders’ equity represents the owners’ residual claim on the assets of the corporation. Chapter 18 distinguishes between the two basic sources of shareholders’ equity: (1) invested capital and (2) earned capital. The chapter focuses on the expansion of corporate capital through the issuance of shares and the contraction caused by the retirement of shares or the purchase of treasury shares and concludes with a discussion of cash dividends, property dividends, stock dividends, and stock splits. The Nature of Shareholders’ Equity Assets – Liabilities = Shareholders’ Equity Shareholders’ Equity Paid-in Capital Retained Earnings Amounts earned by corporation Amounts invested by shareholders Accumulated Other Comprehensive Income Other gains and losses not included in net income Sources of Shareholders’ Equity Net Assets Shareholders’ equity accounts represent the ownership interests of the shareholders in a corporation.
