...Owners' Equity Paper Chris Faust ACC/423 April 3, 2015 Todd Lawson Owners' Equity Paper This paper will give a brief overview of owners' equity and explain why it is important to keep paid-in capital separate from earned capital. It will also answer the questions is paid-in capital or earned capital more important, as well as, is basic or diluted earnings per share more important. Owners' equity consists of both earned capital and paid-in capital and separation of both is a necessity. Contributed (paid-in) capital is provided to the corporation by stockholders for use in business, is paid in on capital stock, includes premiums less discounts on issuance of the stock, and the par value of all stock outstanding (Kieso, Weygandt, & Warfield, 2013). As a company sells stock at a premium, there may be discounts based on items like a reward for service. This form of capital allows investors to assist in the growth potential or expansion of a company. Earned capital, develops from profitable operations, consists of undistributed income that remains invested in a company, and represents retained earnings (Kieso, Weygandt, & Warfield, 2013). As a company makes money from their daily operations, whether that is through the selling of a product, the fixing of machines, or even balancing the books for another company, the capability to bring in a profit from that is a very preferable option. It is important to keep paid-in capital and earned capital separate to avoid the confusion...
Words: 714 - Pages: 3
...Owner’s Equity Paper ACC/423 Katie Bradbury October 26, 2014 Raymond Ho Introduction Paid in capital is the source of raised by the company from equity, and not from ongoing operations in the stock markets in the form of shares. Earned capitals are the resources that a company will acquire in the form of income due to the sale of good and services the company offers. These capitals are both very important to the development and growth of the company’s daily operations. Investors believe that it is very important that both sources of capital are separated, for many different reasons. One reason for the separation is that both capitals are different funding foundations and that paid in capital indicates the assets will be used in the development of earned capital. Likewise, earned capital signifies that assets accumulated from the moneymaking process in the company. As a result, if the two sources are not separated this will create some misunderstanding. That is because paid in capital increase and enhances the earned capital. Merging the two sources of capital will cause a misunderstanding and falsification of the earning the firm has generated. Collaborating the two will also lead to complication in calculations with concern to profit margins. The two sources of capital must be divided this is because the shareholders and investors information must be unmistakably distinguished from one another. Both forms of capitals need to be distinguished for simple and assured...
Words: 987 - Pages: 4
...Accounting Equation Paper Shannon Straight ACC/300 April 20, 2015 Kimberly McMillon Accounting Equation Paper “One type of accounting report is a balance sheet, which is based on the accounting equation: Assets = Liabilities + Owners’ Equity. The balance sheet — also called a statement of financial condition — is a “Where do we stand at the end of the period?” type of report. The header of a balance sheet lists the date that it was prepared (The Essentials of Accounting Basics).” The equation should always remain in balance for every accounting transaction. If there is an increased in an asset account, there has to be a corresponding decrease in another assets account or a corresponding increase in a liability or equity account. To make a balance sheet, we should list the assets and come up with a number. Then we need to list the liabilities and equity and come up with a number. If two numbers are equal, then our balance sheet will balance. It is the balance of one’s assets to the liabilities. Owners’ equity contains the owners capital accounts and retained earnings, and is increased by revenues, owners investments, and issuance of stock. It is decreased by expenses, drawings, dividends and treasury stock. If I have invested cash in a business, we increase assets and increase the owners, equity, we then invested cash and increase assets; the person who invested the cash increases owners’ equity. If I pay for the utilities used in the business, I should decrease assets...
Words: 449 - Pages: 2
...External Reporting 4/30/2015 Stockholders’ Equity Investors typically prefer corporations as investment vehicles. Corporations provide liability shielding and make it relatively easy to buy and sell shares. For this reason, business owners who intend to raise capital most often choose the corporate structure to do so. Owners in a corporation are called stockholders. Corporations exist to provide value to their stockholders. This value is reflected in stockholders' equity. For our paper, we decided to choose stockholders equity. This topic is one of the more important things we have learned so far. Understanding stockholders equity is essential to becoming a good investor. Stockholders' equity, also called shareholders' equity, is the owners' equity in the corporation. It appears on a corporation's balance sheet and reflects the owners' interest in the corporation. You are a stockholder whether you hold or own one share of stock in a corporation or 100 percent of the outstanding shares and are the sole owner. The shares you own, whether actual physical shares or shares documented on paper, reflect your ownership in the corporation. Owning a share of stock then will declare you as a valid shareholder within that company. On the balance sheet, assets less liabilities equal stockholders' equity. Therefore, stockholders' equity is also referred to as net worth. Stockholders' equity records how much you and other co-owners or investors have contributed to the corporation...
Words: 504 - Pages: 3
...The Implications of Risk Management Information Systems for the Organization of Financial Firms Michael S. Gibson* Federal Reserve Board Abstract Financial dealer firms have invested heavily in recent years to develop information systems for risk measurement. I take it as given that technological progress is likely to continue at a rapid pace, making it less expensive for financial firms to assemble risk information. I look beyond questions of risk measurement methodology to investigate the implications of risk management information systems. By examining several theoretical models of the firm in the presence of asymmetric information, I explore how a financial firm’s capital budgeting, incentive compensation, capital structure, and risk management activities are likely to change as it becomes less costly to assemble risk information. I also explore the likely effects of the falling cost of assembling risk information on a financial firm’s organizational structure. Two common themes emerge: centralization within the firm and increased disclosure of risk information outside the firm are both likely to increase. 1 Introduction Financial dealer firms have invested heavily in recent years to develop information systems for risk measurement and management.1 These systems gather data on a firm’s risk positions and compute statistical measurements, such as Value-atRisk, to assess the magnitude of the risks faced by the firm. Increasingly, the uses of these...
Words: 4467 - Pages: 18
...Accounting Equation Paper Keegan Mueller ACC 300 University of Phoenix 2/9/2015 Brian Lichau The Accounting Equation The accounting equation consists of three different entities within an organization; assets, liabilities, and stockholders’/owner’s equity. With these three principles, a company can measure their financial position. The main purpose behind the accounting equation is to figure out what assets the company has. In doing so, they must take into account the liabilities and owner/stockholder equity. The equation is simple: Assets = Liabilities + Owner/Stockholder Equity. The equation is able to illustrate what the company owns versus what it owes. The difference will either be a positive or negative based on how much money the company is making. Broken down, the assets are the company’s resources (what the company owns), liabilities are a company’s obligations (what the company owes), and owner/stockholder equity illustrates the amount of money invested in the company by the owners along with the net income that has not been paid out through dividends yet. The balance sheet is what reports the company’s assets, liabilities, and owner/stockholder equity at any given time. Entries are made on the balance sheet that correlates with each category of the assets, liabilities, equity. Debits and credits are made based on whether money is coming in or going out; debits on the left and credits on the right. The balance sheet should show that the total amount...
Words: 384 - Pages: 2
...Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs and theory, internal control systems, conflicts of interest, capital structure, internal equity, outside equity, demand for security analysis...
Words: 28422 - Pages: 114
...Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs and theory, internal control systems, conflicts of interest, capital structure, internal equity, outside equity, demand for security analysis...
Words: 28569 - Pages: 115
...Accounting Equation Paper ACC 300 University of Phoenix Accounting Equation Paper No matter how big or small a company is, the business will have some sort of financial transaction coming in or out that will affect the company’s financial standing. In any company, the accountant or accounting department plays a crucial role in ensuring the company succeeds. The main role of accounting is to analyze records and keep track of all financial transactions. The resources that make up a company’s assets, as well as the accounting equation, are liabilities and owner’s equity. At first, owner’s equity is affected by capitals such as issuing stocks. Once the business is up and running, income as well as expenses will be added to the balance sheets. Assets include everything the company owns, from the building to the package of paperclips. Liabilities are debts the company has, to other businesses or individuals. These debtors could include vendors, employees, or financial institutions that loaned money. Equity is also referred to as capital and consists of assets and any debts owed to the business from outside sources. In order to understand the accounting equation, the accounting department as well as leadership must understand how these relate to one another. The accounting equation is as follows: Assets = Liabilities + Owners/Stockholders Equity. Examples of assets include cash, account receivable, and equipment (Kimmel, 2011). The way that this accounting equation...
Words: 426 - Pages: 2
...of the more recent example in Singapore of a leverage buyout of a public company involving private equity players , and it showcases a example of how private equity firms typically restructure and streamline the acquired company, subsequently executing their exit strategy via an initial public offering. In this paper, I will first provide a background on the leverage buyout and privatization of Amtek in 2007. This will be followed by an elaboration on the strategic, operational and organizational restructuring measures implemented by the new owners. Lastly, we shall examine why the exit strategy through an IPO in 2010 was not well received by retail and institutional investors, resulting in a pullback of the targeted IPO proceeds and a languishing first-day stock price. Background Amtek was founded in Singapore as Metaltek Engineering Private Limited in 1970. With a core business in precision metals engineering and metal stamping, Amtek was formed during Singapore’s rapid industrialisation period in the 1970s. In 1987, it was listed on the Stock Exchange of Singapore. As an engineering company that did not have an exciting business or product, Amtek was profitable but primarily stayed off investors’ radar for many years. On 22 May 2007, Metcomp Holdings, a private equity partnership between Britain's CVC Capital Partners Asia Pacific, Standard Chartered Private Equity Ltd, and two private investors launched a cash offer for all the remaining shares of Amtek that it...
Words: 1312 - Pages: 6
...business owners to know and understand the value of properly accounting for their cash flow, assets, and liability. This is especially true for new business owners who are just getting started. Accounting is one of the most important functions of a business because if done right the company will do fine and grow, but if done wrong or poorly, then the company will be in a virtual tailspin that will send the company out of business or even into bankruptcy. With accounting being such an important entity there are many options for an owner to choose from when it comes to accounting. Most options nowadays are accounting software applications of some kind, either web-based or stand-alone. However, some small businesses are still doing hard copy paper accounting, which is much more difficult in this day in age. Owner’s Equity One of the first concepts a new owner must understand is how he can determine his owner’s equity. This is a pretty simple business equation that can be best explained to be like the hands of justice, where they always need to be balanced. What happens on one end needs to happen on the other end to stay balanced. The equation is simply assets=liability+owners equity. This equation tells the owner where the company stands. The assets are what the company physically owns like work trucks and how much product. Where the liability is how much the company owes to place like bank loans, and taxes. Owner’s equity is the financial interest of the business owners. Like it...
Words: 775 - Pages: 4
...version received July 1976 This paper integrates elements from the theory of agency. the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optirnality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing tht- creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frcqucntly watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give thcmsclvcs a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or Icss, in the management of the affairs of such a company. Adam Smith. Tire W&rh of Ndutrs, 1776, Cannan Edition (Modern Library, New York, 1937) p. 700. I. Introduction and summary In this paper WC draw on recent progress in...
Words: 27266 - Pages: 110
...Owners’ Equity Paper In a corporation, owners’ equity is also known as stockholders’ equity, shareholders’ equity, or corporate capital. Owners’ equity is equal to the amount of net assets (Halliday, 2012). In this sense, the amount of owners’ equity will increase and decrease with profitability and loss, respectively (Kieso, Weygandt, & Warfield, 2010). Owners’ equity typically consists of capital stock, additional paid-in capital, and retained earnings (Kieso, Weygandt, & Warfield, 2010). This analysis will further explain owners’ equity. In particular, the three categories of capital, the importance of keeping paid-in capital separate from earned capital and which is more important to an investor, and whether basic or diluted earnings per share are more important to an investor. Paid-in capital and earned capital are two different types of funding available to an organization and should be kept separate. Paid-in capital consists of both capital stock and additional paid-in capital above the par value of stock, which is provided from the sales of stocks for use by the company (Kieso, Weygandt, & Warfield, 2010). Earned capital or retained earnings, however, is capital earned from the profitable operations of the company and retained for reinvestment (Halliday, 2012). Paid-in capital and earned capital must be kept separate to provide clear information to the users of financial statements. Users are interested in the amount of earned capital as this represents the ability...
Words: 733 - Pages: 3
...Financial Statement Differentiation – Individual Paper Mary Lou Gasca Accounting ACCT/561 March 18, 2013 Moises Rodriguez Financial Statement Differentiation – Individual Paper Financial statements are tools that people use to evaluate the potential of a business’ organization. There are four types of financial statements for two main types of users (internal and external), which is beneficial, depending on the type of business (sole proprietorship, partnership, and corporation). Regardless of the type of business, financial statements assist in making business decisions for internal and external users. Internal users are the business managers, owners, and an organization’s personnel who contribute to the operations of the business. External users are creditors, investors, and individuals of interest for the business (customers, for example). Financial statements also assist in identifying, depending on the nature of the business, an organization’s resources, profits, debts, business creditability, and financial health of business activities. The four types financial statements, which report financing, investing, and operating...
Words: 760 - Pages: 4
...Interpretation 6. Limitations of ratio analysis Accounting: Definition Is the process of Recording Classifying Summarizing Interpreting in journal in ledger and in Financial Statements financial information in order to make decisions Financial Statements Financial Statements present information about The financial position of an entity Its financial performance during accounting period Its cash flow Financial statements are 1. 2. 3. 4. 5. Statement of Financial Position Statement of Comprehensive Income/income statement Statement of Cash Flow Statement of changes in Equity Notes to the Financial Statements Elements of Financial Statements Statement of Financial Position shows the financial position of an entity as at a particular date. The financial position is shown by assets, liabilities and equity (capital) Income statement shows the financial performance of an...
Words: 2260 - Pages: 10
