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In accounting, stockholders’ equity is the total of all funds of the firm owned by it. The stockholders’ equity capital of the company is used to form a share of assets. A business entity operates with it when making transactions without restrictions or conditions.

Explanation:

Stockholders’ equity shows the part of the property financed by the owners’ funds and income from the enterprise’s activity. The amount of equity capital is widely used to determine the financial condition of the company, its reliability and investment attractiveness.

The amount of stockholders’ equity is equal to the net assets of the enterprise, i.e. the assets remaining after the debts are paid. Therefore, stockholders’ equity capital is also referred to as “net assets”, “residual capital” or “net worth of the firm”. This is calculated using a formula:

Stockholders’ equity = Total value of assets – total value of liabilities

Positive capital indicators arise when the book value of assets exceeds the company’s liabilities and evidence capital growth, including an increase in the size of the company’s assets, an increase in the value of non-current and current assets, sufficient investment, the ability to repay debts and eventually make a profit. Negative capital, i.e. the situation when the liabilities exceed the assets, indicates the insolvency of the organization, insufficient financing and losses.

The statement of changes in equity is a document that reflects the amount of each component of equity at the reporting dates and changes in these components. The compilation and presentation of the statement of changes in equity are governed by IAS Presentation of Financial Statements.

In general, the structure of the statement of changes in equity is as follows:

  1. Equity capital as at the beginning of the period:
  • opening balance;
  • changes in accounting policies;
  • adjusted balance.
  1. Changes in equity for the period:
  • owners’ deposits;
  • withdrawals by owners;
  • net profit (loss);
  • other comprehensive income;
  • other operations.
  1. Equity capital at the end of the period.