Course Outline
Join PRO

What is stockholders' equity?

Author:
Harold Averkamp, CPA, MBA

Definition of Stockholders’ Equity

Stockholders’ equity (also known as shareholders’ equity) is reported on a corporation’s balance sheet and its amount is the difference between the amount of the corporation’s assets and its liabilities.

Generally, stockholders’ equity consists of the amounts the corporation had received from the sale of its common and preferred shares of stock plus the earnings of the corporation minus any distributions to the stockholders. In other words, stockholders’ equity is one source of the corporation’s assets. (The other source are the corporation’s creditors as evidenced by the liabilities.)

Stockholders’ equity and liabilities are also seen as the claims to the corporation’s assets. However, the stockholders’ claim comes after the liabilities have been paid.

Stockholders’ equity is also the corporation’s total book value (which is different from the corporation’s worth or market value).

Components of Stockholders’ Equity

The amount of stockholders’ equity is reported on the balance sheet as follows:

  • Paid-in capital. This is the amount that the corporation received when it issued shares of its capital stock with common stock and preferred stock (if any) reported separately.
  • Retained earnings. Generally this is the cumulative earnings of the corporation minus the cumulative amount of dividends declared.
  • Accumulated other comprehensive income. This is the cumulative amount of income (or loss) for a few items that are not reported on the corporation’s income statement.
  • Treasury stock. This is a reduction of stockholders’ equity for the amount the corporation paid to purchase but not retire its own shares of capital stock.

The changes which occurred in stockholders’ equity during the accounting period are reported in the corporation’s statement of stockholders’ equity.

Join PRO to Track Progress
Must-Watch Video

Learn How to Advance Your Accounting and Bookkeeping Career

  • Perform better at your current job
  • Refresh your skills to re-enter the workforce
  • Pass your accounting class
  • Understand your small business finances
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus