Owners Equity Paper
Owner’s Equity Paper
ACC/423
Katie Bradbury
October 26, 2014
Raymond Ho
Introduction
Paid in capital is the source of raised by the company from equity, and not from ongoing operations in the stock markets in the form of shares. Earned capitals are the resources that a company will acquire in the form of income due to the sale of good and services the company offers. These capitals are both very important to the development and growth of the company’s daily operations. Investors believe that it is very important that both sources of capital are separated, for many different reasons. One reason for the separation is that both capitals are different funding foundations and that paid in capital indicates the assets will be used in the development of earned capital. Likewise, earned capital signifies that assets accumulated from the moneymaking process in the company. As a result, if the two sources are not separated this will create some misunderstanding. That is because paid in capital increase and enhances the earned capital.
Merging the two sources of capital will cause a misunderstanding and falsification of the earning the firm has generated. Collaborating the two will also lead to complication in calculations with concern to profit margins. The two sources of capital must be divided this is because the shareholders and investors information must be unmistakably distinguished from one another. Both forms of capitals need to be distinguished for simple and assured form of security to companies offering capital in surplus. This also offers a form of safeguard to both creditors and investors if liquidation or bankruptcy were to occur. The purpose behind it is that the both sources of capital illustrate the strength of the company financially. Investors will need to be kept aware of the use of earnings and calculations. If both sources of capital are mixed together, company owners will have a hard time trying to explain how their earnings were
ACC/423
Katie Bradbury
October 26, 2014
Raymond Ho
Introduction
Paid in capital is the source of raised by the company from equity, and not from ongoing operations in the stock markets in the form of shares. Earned capitals are the resources that a company will acquire in the form of income due to the sale of good and services the company offers. These capitals are both very important to the development and growth of the company’s daily operations. Investors believe that it is very important that both sources of capital are separated, for many different reasons. One reason for the separation is that both capitals are different funding foundations and that paid in capital indicates the assets will be used in the development of earned capital. Likewise, earned capital signifies that assets accumulated from the moneymaking process in the company. As a result, if the two sources are not separated this will create some misunderstanding. That is because paid in capital increase and enhances the earned capital.
Merging the two sources of capital will cause a misunderstanding and falsification of the earning the firm has generated. Collaborating the two will also lead to complication in calculations with concern to profit margins. The two sources of capital must be divided this is because the shareholders and investors information must be unmistakably distinguished from one another. Both forms of capitals need to be distinguished for simple and assured form of security to companies offering capital in surplus. This also offers a form of safeguard to both creditors and investors if liquidation or bankruptcy were to occur. The purpose behind it is that the both sources of capital illustrate the strength of the company financially. Investors will need to be kept aware of the use of earnings and calculations. If both sources of capital are mixed together, company owners will have a hard time trying to explain how their earnings were
References: Kieso, D.E., Weygandt, J.J., & Warfiled, T.D. (2014). Intermediate Accounting (12th ed.).