What are the Types of Equity? - QS Study
QS Study

There are various types of accounts accustomed to record equity. Each is used to store divers information regarding the interests of owners in the business. The kinds of equity accounts fluctuate, depending on whether a business is organized being a corporation or the partnership.

The equity accounts are as follows:

Kinds of Equity Accounts for Corporations:

  • Common stock. This account is utilized to accumulate the overall amount of funds paid to a business for the par value of the shares that it sells to investors.
  • Additional paid-in capital. This account accumulates the extra amount that investors pay for shares sold by a corporation above their par value. Since par value is generally quite low, the balance in this account can be more higher than the balance in the common stock account.
  • Retained earnings. This account consisted the accumulated earnings of the corporation, minus the amounts of any dividend payments made to shareholders.
  • Treasury stock. This account consists the amounts paid to buy back shares from investors. It consists a minus balance.

 

If a company has in addition issued preferred inventory, then there might be additional accounts to separately track these records. For example, there might be a “preferred stock” account and an “additional paid-in funds – preferred stock” account.

The board of directors can also set up a good equity reserve account, in which they park funds which have been intended for some purpose, such since the construction of a hard and fast asset. There is no organizational or lawful basis for such a reserve account; it simply implies the intent of the board regarding precisely how retained earnings can be utilized in the potential.