Shareholder's Equity Flashcards
Shareholder’s equity is divided into how many parts?
Share capital and retained earnings. For some companies, there may also be other parts to this section, such as comprehensive income.
What is share capital? What is it also commonly known as?
It represents the amounts contributed by the shareholders in exchanged for shares of ownership. Shareholders purchase shares in a company by investing cash (or other assets). These investments are recorded as either common or preferred shares. If preferred shares are issued in addition to common share, the total of all classes of shares issued is classified as, or titled, share capital. Quite often, companies only have one class of shares and the title is simple common shares.
Share capital is also commonly known as capital stock.
What are retained earnings?
The cumulative profits that have been retained for use in a company are known as retained earnings. Changes during the year (or period) to both share capital and retained earnings are detailed on the statement of changes in equity, are combined and reported as shareholder’s equity on the statement of financial position.
What is contributed surplus?
Contributed surplus arises from the sale of shares.
~ What is liquidity?
What order are items placed in statements prepared using a reverse-liquidity order?
GOOGLE: Liquidity refers to a company’s ability to pay its bills from cash or from assets that can be turned into cash very quickly.
It is common practice among North American companies of classifying the items on the statement of financial position in order of liquidity (from the most to the least liquid). Accounting standards do not prescribe the order in which items are presented in the statement of financial position. International companies often present items in this statement using a reverse order of liquidity. Some Canadian companies, especially financial institutions and real estate companies, use this reverse-liquidity order format as well.
Statements prepared using a reverse-liquidity order usually show assets first, followed by shareholder’s equity and liabilities. The assets section starts with non-current assets, followed by current assets. Non-current assets include goodwill and intangible assets; property, plant, and equipment; and long-term investments, which are normally grouped under a non-current heading. This differs from the separate disclosure of non-current assets without a heading that is more usual in North America. Within the current assets section, items are listed in reverse order of liquidity; that is, cash is normally shown last. Items within the property, plant, and equipment section are normally listed in order of permanency similar to pg. 59.
Shareholder’s equity is shown next, followed by liabilities. Within shareholder’s equity, common shares are commonly known as ordinary shares. The liabilities section presents non-current liabilities before current liabilities, and current liabilities are listed in reverse order of liquidity similar to current assets.
