Owner's Equity Paper

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Owner's Equity Paper

Owner's Equity Paper
Capital stock refers to both common stock and preferred stock. There are two types of capital paid in capital and earned capital. Paid-in-capital refers to the stocks issued to an investors in exchange for the capital that that the investor is willing to provide to the company. Paid in capital can be referred to as contributed capital which in turn is reported as stockholders’ equity, when a company receives issued shares of stock. Paid-in capital is kept separate from the earned capital in order to avoid any misinterpretation of where the capital comes from. Earned capital referred to as the value of a company’s assets which is accumulated via their money-making operations. This will help to facilitate a clear separation of the operational capital that comes from the profit making operations. The majority of investors will be concerned with the earned capital versus the paid in capital, as the earned capital reflects the earning potential of a company. Owners’ equity is referred to as the vested interest that both common stockholders and preferred stockholders have in a company. Stockholders are the people that have paid-in capital to a company in order to provide funding that is to be used for the operations of a company.
It is vital to keep paid-in capital separate from the earned capital of a company. Paid-in capital comes from the sale of capital stock whether it be from the stock markets or in the form of shareholder shares. Earned capital comes from the profits accumulated from the sale of goods and services. Both capitals are very vital to the growth and expansion of a company’s operations. However, investors find the need to separate the two source of capital because for various reasons. Kimmel, Donald, Jerry, and Weygandt (2010, p. 577). One of the reasons for the separation of the two sources of capital is…...

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