ACC 423 Indv Wk 1 Paper - RunningHead:OwnersEquityPaper 1...

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Running Head: Owner’s Equity Paper 1 Owner’s Equity Paper Christina Walejewski ACC 423 – Intermediate Financial Accounting III July 11, 2010
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OWNER’S EQUITY PAPER 2 Capital is the backbone of a company; it is the money business’ use to operate. There are two basic types of capital, paid-in capital and earned capital, both are reported in the Owner’s equity portion of the financial statements. This paper will briefly define each type and explain why it is important to separate the two types of capital on financial statements. Additionally, this paper will discuss which type of capital is more important to investors, and the importance of basic and diluted earnings per share to investors. Paid-in capital or contributed capital is “. . . the total amount paid-in on capital stock – the amount provided by stockholders to the corporation for use in the business” (Kieso, Warfield, Weygandt, 2007, p. 729). Earned capital is the capital that “develops from profitable operations” it is reported as net income (Kieso, et al. 2007, p. 729). It is important to keep paid-in capital separate from earned capital because paid-in capital will not reflect the successfulness of a company to generate income. If paid-in capital were included with earned capital net income for the business would be overstated. This overstatement could mislead investors into believing a
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This note was uploaded on 11/07/2010 for the course ACCOUNTING ACC 423 taught by Professor Hannah during the Spring '09 term at University of Phoenix.

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ACC 423 Indv Wk 1 Paper - RunningHead:OwnersEquityPaper 1...

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