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.
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