Owner's Equity Paper

Owner's Equity Paper

Lisa Pilgrim

ACC/423

September 19, 2011

Samuel Smith

Owner's Equity Paper

Owner's equity is of great importance to the success of an organization. It depends on how the equity is increased as to how successful the organization can become. In order for the owner's equity to be increased with the size of the organization stock options are offered. This allows the organization to sell interest in the organization and the share the day to day responsibilities of assets and liabilities with the stockholders in the organization. These stockholders can be with common or preferred stockholders. Both are good options, it just varies as to just how much controlling interest is offered and the amount of risk a potential investor wants to be responsible for.

The tern owner's equity can be defined as the interest that is owned by common stockholders of a company. The stockholders are the persons that have paid-in capital to a company that will be used for the day to day operations. When reporting the owner's equity there is three different parts or classes that are used. They are the capital, additional paid-in capital and the retained earnings.

This paper will detail the important aspect of separating paid-in capital from earned capital and why it is valid to keep it separate. Why the investor whose paid-in capital or earned capital is more worthy, will be detailed. Also, from the point of view of the investor, which earnings per share will bring in more money, basic or diluted will be discussed.

Paid-in capital, also called contributed capital, is the amount paid from stockholders for us in business.(Kieso, Weygandt, & Warfield, 2007) The earned capital definition is the capital that comes from the successful operations of an organization's day to day business operations. This means that the two different types of capital must be separated from each other because of the interest of the investors along with the stockholders. The investors and the stockholders will want to see this separation appear in the organizations financial statements.

The funding of an organization is identified differently in each the paid-in capital and the earned capital. The paid-in capital is earned by the organization by the sale of capital stock. The earned capital is earned by the organization as a result of successful operations. Paid-in capital is the actual profits that are earned from the operations of the organization. If the two different earning types were to be put together it would be a false report of financial information.

When an investor looks at the organization's earnings