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What is "deficit" appearing in stockholders' equity?

Author:
Harold Averkamp, CPA, MBA

Definition of Deficit Within Stockholders’ Equity

The term deficit is used within the stockholders’ equity section of a corporation’s balance sheet in place of retained earnings if the balance in the corporation’s retained earnings account is a debit balance. In other words, the corporation has a negative amount of retained earnings.

Example of Deficit Within Stockholders’ Equity

Assume a corporation was formed just over three years ago. In its first year, the corporation had a positive net income of $40,000. In its second year it had a positive net income of $75,000. As a result, the corporation’s balance sheet at the end of the second year will report Retained earnings $115,000. In its third year the corporation had a net loss of $195,000. Therefore, at the end of the third year the stockholders’ equity section of the corporation’s balance sheet will report Deficit ($80,000) in place of using the words retained earnings.

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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.

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