Owner's Equity

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Owner’s Equity
Owner’s equity or shareholder’s equity is the residual interest in the assets of the organization after deducting all of its liabilities (What is Owner’s Equity, n.d.). In an organization, assets can either belong to people you owe money to (liabilities) or the owner itself. Therefore, owner’s equity can only represent what an owner can lay claim to. Owner’s equity or stockholders equity is usually listed under the balance sheet. Under the stockholder’s equity section you may find the paid-in capital and the retained earnings portion minus the treasury stock which comprises the total stockholder’s equity balance (Accounting Coach, n.d.). While as an investor it is important to pay attention to each aspect of the balance sheet; this paper will particularly focus on the importance of paid-in capital.
Paid-in capital, which is also referred to as contributed capital is listed under stockholder’s equity in the balance sheet. It is the amount of capital that has been paid in during common or preferred stocks issuances by investors (Paid in Capital, n.d.). Important factors to note is that paid in capital does not come from operations but only from investors (Paid in Capital, n.d.).
Keeping paid-in capital separate from earned capital is also important. Earned capital is money that a company receives as a result of profitable operations (Jacobsen & Wachterhauser, n.d.). Paid-in capital comes from the sale of capital stock (Jacobsen & Wachterhauser, n.d.). These two sources have to be kept separate because they come from two different sources of funding. Paid-in capital are new funds that purpose is to help increase earned capital. Earned capital is the profits an organization has from the results of their operations (Jacobsen & Wachterhauser, n.d.). Having these two combined will give an incorrect picture of earning potential from…...

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