The Equity Section of the QuickBooks 20120 Balance Sheet - dummies

The Equity Section of the QuickBooks 20120 Balance Sheet

By Stephen L. Nelson

The owner’s equity section of a QuickBooks 2012 balance sheet looks different for different types of businesses. The owner’s equity sections look different for partnerships and corporations.

The following table shows how the owner’s equity section of a balance sheet looks for a partnership. The owner’s equity section of a hot dog stand business appears if, instead of having a sole proprietor named S. Nelson running the hot dog stand, the business is actually owned and operated by three partners named Tom, Dick, and Harry.

Owner’s Equity for a Partnership
Partners’ equity
Tom, capital $500
Dick, capital 250
Harry, capital 250
Total partner capital $1,000

In this case, the partners’ equity section shows the amounts originally invested and any amounts reinvested by the partners. As is the case with sole proprietorships, each partner’s contributions and reinvested profits appear on a single line.

Go ahead and take a look at the following table. It shows how the owner’s equity section looks for a corporation.

Owner’s Equity for a Corporation
Shareholders’ equity
Capital stock, 100 shares at $1 par $100
Contributed capital in excess of par 400
Retained earnings 500
Total shareholders’ equity $1,000

This next part is a little bit weird. For a corporation, the amounts that show in the owner’s equity or shareholders’ equity section actually fall into two major categories: retained earnings and contributed capital. Retained earnings represent profits that the shareholders have left in the business. Contributed capital is the money originally contributed by the shareholders to the corporation.

The retained earnings thing makes sense, right? That’s just the money — the profits — that investors have reinvested in the business.

The contributed capital thing is more complicated. Here’s how it works: If you buy a share of stock in some new corporation — for, say, $5 — typically some portion of that price per share is for par value. Par value really stems from business practices that were common a century or more ago.

Just trust that typically, if you pay some amount —again, say $5 — for a share, some portion of the amount that you pay — maybe 10 cents a share or $1 a share — is for par value.

In the owner’s equity section of a corporation’s balance sheet, capital that’s contributed by original investors is broken down into the amounts paid for this mysterious par value and the amounts paid in excess of this par value.

For example, you can see that $100 of shareholder’s equity or owner’s equity represents amounts paid for par value. Another $400 of the amounts contributed by the original investors represents amounts paid in excess of par value.

The total shareholder’s equity, or total corporate owner’s equity, equals the sum of the capital stock par value, the contributed capital and excess of par value, and any retained earnings. So, the total shareholder’s equity equals $1,000.