Stockholder’s equity

Definition

Stockholder's equity represents the owners' residual interest in the assets of a corporation after deducting liabilities. It is a crucial component in the expanded accounting equation and fundamental for analyzing financial transactions.

5 Must Know Facts For Your Next Test

1. Stockholder's equity is calculated as Total Assets minus Total Liabilities.
2. It includes common stock, preferred stock, retained earnings, and additional paid-in capital.
3. Dividends paid to shareholders reduce stockholder's equity.
4. Net income increases stockholder’s equity through retained earnings.
5. Transactions affecting stockholder’s equity are recorded in the equity section of the balance sheet.

Review Questions

Related terms

Assets:

Resources owned by a company that provide future economic benefits.

Liabilities:

Obligations that a company must settle in the future through the transfer of assets or services.

Retained Earnings:

The cumulative amount of net income kept in the company rather than distributed as dividends.