Stockholders' equity is one of the three major sections of a corporation's balance sheet. The total amount of stockholders' equity is the difference between the reported amounts of a corporation's assets and liabilities.

The stockholders' equity section reports the amounts for the following:

  • Paid-in capital or contributed capital
  • Retained earnings
  • Accumulated other comprehensive income
  • Treasury stock
Paid-in capital is the amounts the corporation received when it issued its common and preferred (if any) stock. If the stock had a par value, the total par value of each class of stock is reported as a separate amount. Any amount received that was greater than the par amount is reported as Premium on Common or Paid-in Capital in Excess of Par—Common Stock.

Retained earnings is the cumulative net income since the start of the corporation minus the dividends declared since the start of the corporation. (In rare instances there may have been some adjustments to the balance of the retained earnings.) In effect, the retained earnings are the profits that the stockholders have opted to reinvest in the business. The amounts are likely to be invested in various assets other than cash.

Accumulated other comprehensive income reports the cumulative amounts of items defined as other comprehensive income (which had been reported on past statements of comprehensive income up to the date of the balance sheet). This includes items such as foreign currency translation adjustments and unrealized gains/losses on postretirement benefit plans.

Treasury stock (cost method) reports the amount paid by the corporation to purchase its own shares of stock from its stockholders. This account will have a debit balance which reduces the amount of stockholders' equity.

The total of stockholders' equity is the book value of the corporation. You should realize that the book value or amount of stockholders' equity does not indicate the market value of the corporation.