Own capital in the balance of the enterprise

Own capital in the balance sheet reflects the receipt of such funds as shareholder contributions, additional capital and profit. Its magnitude can change constantly. At the initial stage, when the firm is only being formed, it has one source of funding - the contributions of the founders.

Let's consider own capital in balance on an example of one of the most difficult forms - joint-stock company. Joint-stock companies have an additional source of equity. It is not available to LLC, IP and other forms. AO has the right to issue shares. The company's charter specifies in advance the amount by which it can create these securities. But usually AO does not issue shares for the whole of this value at once. The balance sheet shows the amount by which the share capital has already been paid. As soon as new shares are issued, the book value of capital increases by the amount of the nominal value. But this amount does not always increase. Own capital in the balance sheet is reduced if the joint-stock company starts buying out its own shares. Its amount is reflected in the liabilities section. Shareholders invest their funds in the shares of the organization, that is, as it were, give a loan. But at the same time, investors become co-owners of the company. A shareholder has the full right to resell a security, but can not return it back to the organization.

So, the sources of own funds in the balance sheet are reflected in the "liabilities" section. We will consider, what receipts, not connected with commercial activity, still can be at firm.

• Share premium - the difference between the price of a share and the value at which it was sold;
• Additional capital is the amount that a firm receives from selling its own assets at an inflated price or from acquiring assets of another company at a lower cost;
• Random donations in any form: property, monetary and other.

Own capital in the balance sheet also reflects part of the profits of the organization. When AO receives a net income, it pays dividends from it to its investors. The profit left after this, goes to increase of own capital.

How else is equity reflected in the balance sheet? The "Reserve capital" line indicates the amount of undistributed profit, which is intended for target expenses. The firm should create similar stocks. In this case, the tax legislation provides for a number of benefits. Reserves are made from the revenues received. The funds from this article go to renewal of fixed capital, to cover various losses, losses, etc. The size of the reserve is determined by the management of the company and depends on the situation prevailing in the organization at the moment. That is, if in the near future the company can incur certain losses in connection with some risks, the founders decide to allocate a certain amount for insurance.

The section "Equity capital" also includes the following balance lines:

• Additional capital. It reflects the value of assets that the organization received gratuitously. If a firm buys shares for a price higher than the nominal, then the difference is also included in this section of the balance sheet;
• undestributed profits. This is the income that the enterprise has received since the commencement of its operations, minus dividends, losses, various expenses of capital;
• Adjustment for revaluation of assets. The amount of increase or decrease in the value of assets owned by the enterprise;
• Exchange rate difference on transactions related to the purchase or sale of foreign currency;
• A set of expenses and incomes. This is an account open for a while. Here are the sums of all profits and expenses before transferring them to the line "Net profit" or "Retained earnings".

The entire cost of equity is indicated in the third section of the balance sheet. The more it is, the firmer the firm's position is.