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Owners Equity Essay

In: Business and Management

Submitted By tonybonnette
Words 871
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Owner’s Equity Paper

Introduction Owner’s equity is defined as corporate, shareholders, or stockholders capital that is derived from daily activities of a company. Both paid-in and earned capital depict the reporting phase behind owner’s equity in an organization. Paid-in capital is defined as amount of contributed by stakeholders/investors to the organization when they acquire shares. Earned capital is referred to as accumulated income in the company. It is important to separate the two forms of capital.
Separating paid-in capital from earned capital Earned capital and paid-in capital is the money that is owed to the owners of a company. Separation of the two is important because it will enable investors and shareholders of the company to distinguish the two forms of capital. Whereas paid-in capital is the amount paid by the stockholders to be used in running the business, earned capital is the amount of money driving from the commercial operations of the company. Separations of the two capitals are essential for stockholder and investor because it will enable them to monitor the financial position. Separation of earned capital from paid-in capital facilitates the trailing of earnings made as well as dividends disseminated in the company. In essence, paid-in capital has to be separated from earned capital because investors will be able gauge the performance of the company. Separating the two forms of capital enables the company to evaluate accumulated income in the organization. This means that the investors are able to establish when the company is making profits and when it is making loses. Earned capital is negative when a company makes losses; by separating it from paid-in capital, the company will be in a position to fine-tune its operations in a way that can put up with the retained earnings. Dividend distribution can trim down retained earnings in...

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