- 12 lessons
- 6 quizzes
- 1 week duration
2. The Balance Sheet
3. The Income Statement
4. The Statement of Cash Flows
5. Final Exams
2.4 Statement of Shareholders’ Equity
By now you must have gained some idea on shareholders’ equity as I have mentioned it several times in the previous lessons.
Shareholders or owners are the individuals or entities who invest their money in the company for a long term.
The return of the owner depends on the success of the company.
As you may have seen earlier that Owner’s Equity (amount invested by the owner in the company) is written in the liabilities side.
It is because the company is liable to payback all the money it took from the owner to run itself. You can see here that the company is being treated as a person.
But the owners are the last one to take the profits. See the equation below:
Owners’ Equity = Assets – Liabilities.
So owners will take only what is left after paying all the liabilities of the company.
If the company has large number of owners, which generally happens in the case of big corporations or public companies, then the accountants also prepare a Statement of Shareholders’ Equity. Otherwise, it is not that much meaningful to anyone.