![]() Stockholders’ equity can decrease in two ways: Business generates net income and Retained Earnings is credited and increases.Owners invest in stock and Common Stock is credited and increases.Stockholders’ equity can increase in two ways: (The original $1,000 plus $2,000 profit - $500 dividends paid out) Stockholders’ equity after one month of operations and after each of the thirty investors receives a cash dividend payment of $500:Įach investor is now worth $2,500 in the business.Stockholders’ equity after one month of operations in which Fees Earned is $65,000 and total expenses are $5,000 (so net income is $60,000):Įach investor is now worth $3,000 in the business.Stockholders’ equity after 30 stockholders invest $1,000 each, for a total of $30,000:Įach investor is now worth $1,000 in the business.Stockholders’ equity before a business opens:. ![]() The following examples illustrate journal entries that can cause stockholders’ equity to change. ![]() Retained earnings increases when revenue accounts are closed out into it and decreases when expense accounts and cash dividends are closed out into it. It decreases due to a net loss or dividend payouts. Stockholders’ equity increases due to additional stock investments or additional net income. \)Īny change in the Common Stock, Retained Earnings, or Cash Dividends accounts affects total stockholders’ equity.Ĭommon Stock + Retained Earnings = Total Stockholders’ Equity ![]()
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