 In this presentation, we will take a look at the statement of stockholders' equity. When considering the statement of stockholders' equity, we are of course talking about a corporation because corporations' owners are stockholders. If we were talking about a sole proprietorship or partnership, it's always good to keep in mind the comparison of different types of entities. We would be talking about a statement of owners' equity or a statement of partners' equity respectively for a sole proprietor or a partnership. It's important to note that it's useful to note that the statement of owners' equity or any equity statement is going to be the equity section for that business type. So in other words, if we think about equity as a whole, like if we think in this case of a corporation and we had one shareholder who owned all the shares, then it's the same as if we had one partnership who owned all the partner's equity, which that can't technically be the case because you need two or more partners, but in any case, if we think about the whole partnership owned by one individual, that would be similar to the whole thing owned by a corporation. Or if it was a business structure in terms of a sole proprietor, we only have one owner, then of course by default, the whole equity section is due to that one owner. So remember that in a statement for a sole proprietor, then all we need in this equity section would be a capital account. And if we're talking about a partnership, then we need multiple capital accounts and we could also have draws accounts in there. And then for a corporation, we're going to break it out a bit differently, which looks very confusing at first glance, but it's really not any more confusing than a partnership where we have to track each individual capital account, which is also a bit tedious. So it's really not too difficult to break this out, but it's a little bit unusual when we first start. And when we look at book problems in particular or larger corporations, we have other confusing factors like treasury stock and preferred stock. And we'll talk about those here, but we don't want to get too into those because really we want to just focus on the main components of the corporation. How is it different? How is the statement of stockholders equity different? What is the equity section for a corporation versus that of other entities partnership sole proprietor? What we have here is our trial balance. And it's very short trial balance, but it'll just give us an idea of something in balance, us converting that to the statement of stockholders equity. Note what we're not doing. We're not making the balance sheet. We're not making the income statement. And that's because those things are going to be the same from sole proprietor to partnership to corporation in essence, they'll basically be much the same. And we're focusing here on what is different. So we've looked at income statements before, we've looked at balance sheets before, before, they're going to be much much the same no matter what type of entity we have. Here we're focusing on that part of the statement, that area on which the statements will differ from entity to entity. So we've got our assets are going to be in green, we've got the liabilities in orange, we've got the equity section and light blue, and the income statement, including revenue and expenses in dark blue, debits are represented with non bracketed numbers or positive numbers, credits are represented with bracketed numbers or negative numbers of the zero down here represents the fact that the all the debits minus all the credits equals zero or the debits equal the credits. So that means we're in balance, this net income is revenue, not a loss, or its income, not a loss, it's net income, not a net loss, which is the 500,000 revenue minus the expenses of 75,000. That's where that 425 is is taking coming into place here. So remember that if we're talking about equity as a whole, we have the accounting equation, which is assets minus liabilities equals equity. So we can do that here, we can say that the assets are only cash in this trial balance, 1,1,388 minus liabilities of 20,000. So we've got 1,368, and that'll equal the equity, which is all of the blue area, meaning the income statement will close out to the statement of equity, and therefore as part of equity as well, it's going to close out to retained earnings. So we should be able to get to that same number 6,6,0, 0,0,0, and then we'll add to it the paid in capital, so we're going to say plus the 230. And then we're going to subtract to it the dividends because they're a debit, they're a contra equity account, so minus the 264. And then we're going to add the retained earnings, which is a credit 317. And then we're going to add the revenue, which is a credit plus the 500. And then we're going to subtract the expenses, which are debits minus 75. And that gives us the 3 million, 1 million, 368. So in other words, if we were to break this whole thing down all these blue numbers into just one number, we would call it equity for the accounting equation, which would be the same for a sole proprietor or a partnership or a corporation, it would be 1,368. Now we're just going to take that number and we're breaking it out in a bit different format. So the format then is going to be broken out in terms of what was invested versus what has been retained in earnings over the company. In other words, if we were a partnership, we would break things out in terms of each partners capital accounts, we have to track kind of what the partnership owes to the partners. We're not going to do that in a corporation because we have standardized everything. All the stocks are the same. So that's a really helpful concept because if we are have a partnership with like 100 partners, then we have to track 100 capital accounts. But if we have more way more than 100 stockholders, we can have a lot less effort because of the standardization. How are we going to track all these individuals? Well, they're going to own stocks that are all the same just like owning kind of units of a dollar or units of currency or something like that. And so we're going to break out on our financials what was initially invested into the company. And that's going to be the common stock in the paid in capital, common stock representing what was invested at a par value, paid in capital, what was invested over and above the par value. This then is kind of like the initial investment for any type of organization, whether it be a sole proprietorship, partnership, corporation, we start off investing into the company typically for a partnership or sole proprietor that would increase the capital accounts being owed back to the owner is what that represents. For the corporation, we're going to increase the common stock and the additional paid in capital. And then related to that, the other component is what has been earned throughout the company, which has not yet been distributed in the form of dividends that's represented by retained earnings. That's going to be the amount again that the company has earned over time through probably by because of as part as a result of in part, the initial investment, what has been accumulated over time, less what's been taken out and given back to the owners, not in the form of draws, as it would be for a sole proprietor or or partnership, but in the form of dividends. So that's what these components are. And then the question is, well, what is dividends and where does the revenue come into place? Just revenue is going to be the same as it is for a sole proprietorship or partnership, it's going to be closed out to the equity section. The only difference is which account it goes to. If it was a if it was a sole proprietorship or partnership, it would go to the capital accounts. For a corporation, it's going to go to the retained earnings, meaning it's going to go to the half of the equity section, representing the money that has been accumulated over time, which has not yet been distributed. It's not going to go to the amount of investment portion of the equity section, which would be up here. So it's going to close out to be part of the equity in the same way, but in this case, part of retained earnings. We've also broken out dividends here and dividends is going to be similar to draws for a sole proprietorship. It may not be broken out on a trial balance. It may just be taken out of retained earnings. In that case, we'd have to look at the GL for retained earnings and see if anything has affected it, such as dividends, decreasing the retained earnings over time. So remember what draws are for a sole proprietor or partnership just represents the owner taking money out of the company. So the company has or the business has generated revenue, company takes money out. When we talk about a corporation, it's not quite so easy to do. However, one of the drawbacks of standardization to have all the stocks being the same means that we can't just track each individual's capital account and say, hey, you can draw what you want up to your capital account. We have to say, all draws will be the same. All shares are the same. Therefore, if we decide to make a draw, we're going to make the same for everybody and therefore not call it a draw, but call it a dividend. So there's going to be just a more bureaucratic process to a dividend, meaning the board of directors has to determine what the dividend will be and determine when to give the dividend. But in practice or in essence, it's much similar to the draw in that it represents the business taking some of their earnings that have accumulated over time, paying it out to the owner so the owner can then do with it what they want. So now we're going to take this information and make the statement of stockholders equity, which of course focuses in on the blue area here. So we're focusing in here. If we were not having a lot of activity in terms of more purchases, which we won't, so we're going to show kind of a statement of stockholders' equity in a little bit more simplified than the most complicated statement of stockholders' equity, so that we can make this comparison to other types of entities more easily and not get too drowned down on complications such as treasury stock and preferred stock and focus on the major components which would be there in any type of corporation, whether it be a small or large corporation. So when we break this stuff out, then we're going to first start with our beginning balances. We could represent them as the beginning of the year, so balance as a January 1st, 2001. It might be represented at the end of last year, so it might be represented as December 31st in the last year, so just be aware that it obviously the last day of the prior year is the same as the current day of this year. We're going to break the statement of stockholders' equity out into its components that we see here, meaning we've got the common stock component and we've got the retained earnings component. Those are the major two components that we are looking at for a statement of stockholders' equity. Now if there are treasury stock, which we'll talk a little bit about, or preferred stock, we'd have to be a little bit more complicated in it, but we want to focus here on just the statement that would be not quite as complicated for most types of smaller companies that wouldn't have the preferred stock or treasury stock to give an idea of what this statement would look like. Setting up these columns is often the most confusing part of setting this stuff up, so we're really just taking these ideas here that are listed vertically and put them into a column format so that we can break them out in a similar format. Then we could just start off with these numbers pulling them directly from the trial balance. So the common stock at the $5 par was at $660. We're going to flip the sign. We don't want to have credits here, so it's all going to be plus and minus in the financial statements. That's the point of the financial statements. People don't understand debits and credits, although they're more efficient to use. Therefore, we're going to put it over here in a plus and minus format. We're going to do the same for the paid in capital. We got $230 here. We're going to pull that over, $230, positive number over here. We've got the retained earnings starting at $317. And once again, we're pulling that over here. Retained earnings is a little bit confusing because it's probably the most confusing component on the financial statements as is the capital accounts for a super prior chip or partnership for a few different reasons. One is that this retained earnings, although a trial balance will typically say as of the period ended, like $1231 in this case, the retained earnings represents really usually closer to the beginning balance on this trial balance, even though it's a year end trial balance. Why? Because everything underneath it and this dividends account above it will be closed out to it. And therefore, this is kind of like a T account or a GL account, which doesn't have everything that happened to it in it yet through the entire period because we broke it out into different accounts. We broke it out into revenue expenses and into dividends in this case. So this number, although it's on the year end trial balance is typically going to be the year beginning number until we do the closing process to close out temporary accounts to it. Now the dividends note we broke out separately so that we can see them and in practice, however, they may be put directly into the retained earnings, in which case this retained earnings, we'd have to go to the general ledger and see if there's any activity to retained earnings. So retained earnings should match our beginning balances here should match our ending balances as of last year. So if we look at last year's financial statements, the ending balances should match these if they do not, then something must have happened on the trial balance throughout the year. So we'll have to go something must have happened in the general ledger. So we'll have to go through the general ledger and see what happened throughout the year and see if there's any information in there. If the beginning balances don't match on the GL, that means that somebody changed something after the year end was closed. And then we got to figure out, you know, who changed what happened to the prior year got changed somehow. And that is a little bit more difficult, typically. So here we have that number, then we've got the total then, which we're just going to add these up. So what we have now is going to be the 660,000 plus 230,000 plus retained earnings 317,000, given us the 1,207,000. So that means we found a home for this one, we found a home for this one, and we found a home for this one. Once we find a home for all, we should be good. Next, we're going to have the net income. Now this is going to be the same. This should look familiar. If we saw the net income for a sole proprietorship or partnership, that's going to increase the equity section. So if you look at this total section over here, this would be similar to any type of entity total, meaning sole proprietor, this is kind of like the beginning balance for a sole proprietor, if it was one capital account, partnership, this is kind of like what all the partners beginning balances would be, if it was the statement partners equity, corporation, this is the beginning balance, just adding up the components of the statement of owner's equity account. So we're going to take the net income, which is the 500 and the 75 or the 425. So that'll take care of the whole income statement side. And of course, we've condensed the income statement down to just revenue and expenses rather than having categories of expenses here. And that'll give us the 425. All we need to know then is which column should it go to. And just like the closing process, we're going to close out retained earnings, not to the investment side, not to the stock, we're not buying stock, we're going to close it out to the account, we call retained earnings. So that means when we work, the statement stock will is equity same thing, we're basically closing it out to retained earnings. And then we'll just bring over the total of the 425. So the total again, it'll kind of match no matter what type of entity the total is kind of like what would happen in total for total any industry, okay, any, any type of entity. So then we're going to say less dividends declared. And that's going to be the dividends here. So these are going to be the dividends that happen throughout the year. The only thing confusing about dividends as compared to other types of entities is probably the name, for the most part, so a dividend is most similar to draws. So people don't make that comparison most of the time, because the fact that dividends have to be all the same, they do have different characteristics, because to get a dividend, they have to be voted on differently. And every stockholder gets the same dividend, but they're really kind of the same thing in that the company is taking what has been accumulated over time, giving it to the owners of the company for sole proprietor that being the owner for a partnership that being the partners for a corporation, the owners being the stockholders. So the same thing is happening, we're increasing, like if we think of total equity by that income, and then we're going to decrease it by the amount that was taken out by the owners, in the case of a corporation, those are called dividends. So we're going to decrease the dividends once again to retained earnings, we're not taking dividends out of the out of the common stock or the paid in capital, the amount of investment, because we typically won't give a dividend if we don't have earnings over and above the investment, that's usually kind of the standard norm of a rule to give the dividend that needs to come out of the earnings of the company. If we're just giving out the initial investment, then that could have different type of ramifications, different types of tax consequences. So that's going to give us the 264. Then just to show that there could be other activity here, and again, we're going to be a bit more simplified in this statement, so that we can compare it to other types of entities. And so we're not going to be dealing with the issuance of more common stock or the repurchase of stock, such as treasury stock here, or preferred stock. A couple reasons for that, one is that the purchase or the issuance of common stock probably is only going to happen periodically. It's not something that happens all the time, just like when we have an initial investment for a sole proprietorship or partnership, we're hoping that we put in the initial investment, and then we start to generate revenue. And the typical thing is we getting money back, either in the form of draws or dividends, depending on the type of industry. So hopefully we're not always trying to put more money in, which would be issuing more and more stock. And then the repurchase of common stock would be something like we're purchasing our own stock from the market. And that's really kind of a strategic thing most of the time. So for most non-publicly traded companies, they're not going to be purchasing back their own stock typically. So publicly traded companies even would need some kind of strategic reason for doing that. So we're not going to get into those here at this time. Then we're going to have the balance as of December 31, 2000 X1. So just as we would for any type of statement of equity, sole proprietorship, partnership, or corporation, we started with the beginning plus income minus basically draws. And now we've got the ending balance, we're just going to pull these down. So the common stock, no change. So we just pull that down. 660 the paid in capital, no change. Why? Because we didn't sell any more, we didn't issue any more stock. So that would really only change, you know, unless we issued stock or repurchased our own stock. So typically with an issue with stock. And then we've got the retained earnings. And remember the calculation here is a little tricky. It's not just all adding here. We're going to say it's the 317,000 beginning balance plus net income of 425 minus the dividends of 264. That'll give us the 478. So just this is a negative down here. And we're not showing it with a sign, some statements might, but we are showing it with words. So typically you got to just financial statements are kind of funny that way. Sometimes they'll have a negative sign. Sometimes they'll have the word. Sometimes they'll just assume that you know, such as revenue minus expenses, probably won't have anything there probably won't have a sign or a negative. We're just going to say, Hey, you've probably looked at an income statement before you probably know that. So the formatting always isn't always as you might think. So then the total here will be a similar type of calculation. We're going to say the total was 1027 at the beginning, plus net income of 4425 minus the 264 dividends that gives us the 1,368 that representing all of equity. So we found a home for all of equity. In other words, if we just look at all this stuff here, the credits will win. So we'll just say credits 660,000 plus 230,000 minus the dividends 264,000 plus the retained earnings 317 plus the 500,000 revenue minus the 75,000 expenses, that being the 1,368. And again, that's going to match the revenue or the assets minus liabilities or the 1,388,000 minus the 20,000. So there we have that information. Nope. What we have here also is a format where, and this typically often will be the case, there's nothing happening to the statement of stockholders' equity or paid in capital. In other words, just like normal closing process, what we really did here was close out or show the activity for the time period, the year of the retained earnings here. We closed that. We made money. We closed it out to retained earnings, or it's part of retained earnings. And then we took some money out, gave it to the owner in the form of dividends. And there was no change. There was no other stock issued in the form of common stock. So there's not any change up here. This statement is a change statement. It represents changes, things that are changing. So these two columns aren't doing a whole lot. We need them in order to get to the total, which would be the total of all these accounts here. But they're not telling us anything more than probably is on the balance sheet, because the balance sheet's going to give us these ending balances numbers anyways. So really, all we need here is a statement of retained earnings. If this is the case, and no new stock was issued, note the retained earnings is where all the activity happened. And that may be the case a lot of the times. So if you see a statement of retained earnings, that may be all you need. You might say, all we have is a statement of retained earnings. Why? Well, maybe there is no change to the common stock. Maybe you have no more issuances of stock, which may be the case. Remember that when you think about stock trades, which happen all the time, they're not usually issued from the company. You're talking about stock trades between investors trading stocks that had already been issued and are already in the market. That's part of the beauty of stocks. They can be traded once the initial issue has been made very easily.