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What Does a Statement of Stockholders Equity Disclose?

Original post by Vicki A. Benge of Demand Media

A statement of stockholders' or shareholders' equity is one of the main financial statements a public company prepares. Others include the balance sheet, income statement and statement of cash flow. Information reported on a stockholders' equity statement may be presented as a stand-alone statement, included as part of the balance sheet, or as part of a separate statement of retained earnings. Policies of individual companies vary. However, the information must be reported to shareholders of public companies in some format.

Number of Shares

Disclosures on a statement of stockholders' equity include detailed descriptions of the number of preferred and common shares authorized, i.e., those that can be issued, the shares actually issued both to the public and as part of internal incentive plans, totaling the number of shares outstanding. The number of shares outstanding equals all those issued minus any repurchased by the company and recorded as Treasury Stock on the financial statements.

Treasury Stock

Treasury stock transactions recorded on a statement of stockholders' equity do not affect the income statement. In a cost method of accounting, the shares reacquired or repurchased by the company are debited to Treasury Stock and credited to Cash on the financial records, thus being subtracted from total shareholders' equity. If the same shares are reissued again to investors, the transaction is reversed; Treasury Stock is credited and Cash is debited. When a company has an active Treasury Stock account, the number of outstanding shares will not equal the number of shares issued. This should be reflected in the details on the stockholders' statement of equity.

Par and Issue Values

The value of stock shares reported on the statement may be listed at par value, a dollar amount often significantly lower than the actual issue price. For example, suppose stock is issued at $20 per share, but the par value recorded is $1 per share. On the financial statements, the dollar amounts for 10,000,000 shares issued could be listed as Common Stock valued at $10,000,000 plus Capital in Excess of Par as $190,000,000 for a total of $200,000,000. If shares of stock are issued at no-par, the statement will contain no amounts listed as Capital in Excess of Par. Instead, stock issued will be debited from Cash.

Net Worth

According to the U.S. Securities and Exchange Commission (SEC), in company financial statements, liabilities plus stockholders' equity must equal the reported assets of a company, thus value of equity equals assets minus liabilities. The statement will show cash dividends paid plus dividends paid in shares of stock and will report retained earnings, if applicable. The total stockholders' equity at the end of the reporting year may be referred to as the company's net worth.

                   

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About the Author

Vicki A. Benge launched her writing career in 1984 reporting for two newspapers. She has written numerous encyclopedic articles for "Kentucky Crosswords" and has published two books. An entrepreneur, Benge started her own business in 1999. She is experienced in both business and personal taxes and has worked as a licensed insurance agent.

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