ACC 423 Week 1 Individual Assignment Owners’ Equity Paper

Apr 22nd, 2015
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ACC 423 Week 1 Individual Assignment Owners’ Equity Paper

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Owners Equity PaperACC 423 / Intermediate Financial Accounting IIIOwners Equity PaperIt has been a challenge to attempt writing a paper on the subject, as it is very difficult to distinguish between paid-in-capital and earned capital. Therefore I have decided to first define the two financial areas while answering the following questions in the assignment.Importance in keeping paid-in capital separate from earned capital.When the company issues the stock to its investors, it receives certain capital as their investment, and this is known as the paid-in-capital. This type of capital is not generated from the operations of the company but it is the excess over the par value of the stock which the investors are willing to pay for the stock they receive from the firm. Thus it is the amount paid in on the capital stock by the stock holders to the company. It therefore represents the shareholders investments, while the earned capital is the capital which is accumulated from the profits of the company. Hence it is very essential for the company to split these two types of capital to ensure the investors about the operations of the company and its profitability. It is the undistributed income which remains with the firm (Kieso, Weygant, & Warfield, 2007).Paid-in or Earned CapitalAn investors decision to invest in any company/firm depends on the ability of the firm to generate continuous income flow and profitability, the policy relating to the

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