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Liability And Stockholders Equity Essay

1616 words - 6 pages

Liabilities and owners' equity includes all debts and obligations owed by the business to outside creditors, vendors, or banks that are payable within one year, plus the owners' equity. Often, this side of the balance sheet is simply referred to as "Liabilities."Total liabilities and owners' equity comprises all debts and monies that are owed to outside creditors, vendors, or banks and the remaining monies that are owed to shareholders, including retained earnings reinvested in the business. Stockholders' equityA company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how much the company would have left over in assets if it went out of business immediately. Since companies are usually expected to grow and generate more profits in the future, most companies end up being worth far more in the marketplace than their stockholders' equity would suggest. For this reason, stockholders' equity is of more interest to value investors than growth investors. Stockholders' equity is the owners' residual interest in an entity's assets, that is, stockholders' equity equals assets less liabilities. We express this in the form of an equation, which is called the accounting equation or balance sheet equation, which is stated as:ASSETS = LIABILITIES + STOCKHOLDERS' EQUITYEquity goes by several names in the real world. Equity is variously referred to as capital, owners' equity, net worth, and net assets. Stockholders' equity has two components: invested capital and earned capital. Stockholders' equity increases for two reasons, investments made by owners, and profitable operations of the business. Equity decreases for two reasons. Owners take money out of the business (dividends), and unprofitable operations of the business. I.B.M. has current liabilities as shown below in the table. Unearned revenues occur when a company is paid up front for work that has not yet been completed at this time, the full amount would have been posted into the unearned account (Credit) and CASH (Debit). As work is completed, the revenue must be recognized during the accounting period in which it was done and amount entered to Fees Earned account therefore, amount earned must come out of Unearned account and into Earned account, after reviewing IBM's financial data we were unable to determine whether there are unearned revenues. Beginning with the Revolutionary war, the U.S. government has issued bonds to fund war expenses. Most of us at some point had a U.S. Savings bond bought for us as a birthday or Christmas present. But government bonds, as you know, aren't the only kind of bonds out there. Corporations and entities other than the government can also issue bonds, which basically are certificates of debt the issuer guarantees to repay, along with a certain amount of interest, on a specified date. Although they don't historically return as much as investments made in...

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