Equity

Equity represents the difference between the assets and the liabilities of a business.  On the balance sheet, “Total Assets” minus “Total Liabilities” equals “Net Equity.”  Quite a few types of equity accounts exist on balance sheets.

All corporations issue “common stock,” which is the most basic form of ownership of a corporation.  Stock equity may also be referred to as “Paid-In Capital” on a corporate balance sheet.  Some balance sheets include an “Additional Paid-In Capital” account as well, representing excess funds invested in stock over and above its arbitrary “par value.”

If a corporation subsequently purchases some of its stock back from shareholders, the amounts paid in these transactions are booked as “Treasury Stock.”  Treasury stock will, therefore, have a negative balance as an equity account.

Other forms of business ownership may use somewhat different terminology than this; however, all businesses will have “retained earnings,” which simply represent the sum of all of their profits and losses for all periods.