The stockholders' equity accounts are balance sheet accounts and a part of the accounting equation Assets = Liabilities + Stockholders' Equity. In this light you can view the stockholders' equity accounts (along with the liability accounts) as sources of the amounts reported in the asset accounts.
If the source of an asset was an investor purchasing new shares of common stock, the corporation would credit the stockholders' equity account Common Stock and perhaps Paid-in Capital in Excess of Par--Common Stock, or Premium on Common Stock. If the source of an asset was an investor purchasing new shares of preferred stock, the corporation would credit the stockholders' equity account Preferred Stock and perhaps Paid-in Capital in Excess of Par--Preferred Stock, or Premium on Preferred Stock.
If the source of an asset was the net income earned by the corporation, the stockholders' equity account Retained Earnings would be credited. If a corporation reduces its assets by purchasing its stock from its stockholders, the contra-stockholders' equity account Treasury Stock is debited.
After working as an accountant, consultant, and university accounting instructor for more
than 25 years, Harold Averkamp formed AccountingCoach.com in 2003. His goal was to
share his knowledge and passion for teaching accounting with people throughout the
world at a very low cost. Read More...