How is the Stockholders’ Equity section of a corporate balance sheet different from that in a single-owner business?
Week 7 Discussion: Stockholders’ Equity
Stockholder’s equity is the balance sheet’s section that represents the capital exchanged for stock and retained earnings. Stockholder’s equity is the current equity held by a company’s investors. Stockholders’ equity is calculated by dividing total assets by total liability (Weygandt, Kimmel, and Kieso, 2019, p.22). Except for the section on equity, the balance sheets of the corporation and a sole proprietorship are similar. A corporation has multiple owners/ shareholders, whereas a sole proprietor has a single owner. So the balance sheet’s total assets and liabilities provide the single owner with the value of the business over which the owner has control.
The equity section of a corporation’s balance sheet contains more accounts than a sole proprietorship, including paid-up capital, retained earnings, preference shares, reserves, and surplus and treasury stock. A sole proprietorship has one owner and no stockholders. In a sole proprietorship, there is only one account which is the capital account under the equity section. The money reflected in the retained earnings and contributed capital in the corporation’s balance sheet is reflected in a single capital account in the sole proprietor’s balance sheet.
Reference:
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial accounting. John Wiley & Sons.
