Shareholders' equity
From Wikicpa
Shareholders' equity is a residual value that enables us to reconcile assets and liabilities. Shareholders' equity (which is figured each year for reporting purposes) is a calculation of: retained earnings from the prior year + net income of the current year. When a company looks at shareholders' equity (or specifically the statement of shareholders' equity), they can learn several things: how much was left over (positive or negative in value) last year, what is the difference in revenues and expenses experienced by the company (net income or net loss) of the year at hand, and how much was paid out in dividends in the year at hand.
First consider the scenario if shareholders' equity was zero: assets equaled liabilities. If a shareholders' equity were positive, by rule of the accounting equation, assets would either increase or liabilities would decrease.
An increase in shareholders' equity is a 'good' thing. For example, if a company makes a sale, this results in revenue which should outweigh associated costs and result in positive net income. By rule, an increase in net income increases shareholders' equity.
Accounts
Shareholders' equity consists of basic capital and reserves if using fund accounting.
Accounts listed under shareholders' equity include:
