Money Invested
Money invested by owners is called what?
Contributed capital
Capital generated from business operations is called?
Earned capital
When revenues are greater than expenses, what is it called?
Net profit
Payments made to shareholders from profits are called?
Dividends
What financial statement shows changes in equity?
Statement of changes in equity
A company issues shares for cash. Which equity component changes and how?
Contributed capital increases
Why is retained earnings classified under earned capital rather than contributed capital?
Because it comes from accumulated profits of the business, not owner investment
Net income increases which part of equity?
Earned capital / retained earnings
Do dividends increase or decrease equity?
Decrease equity
Equity equals what basic equation?
Assets – Liabilities
A company issues shares of stock to investors. What is the effect on equity?
Contributed capital increases
Where is net income transferred at year-end?
Retained earnings
A company has expenses greater than revenue. What happens to equity?
It decreases
Dividends affect retained earnings in what way?
They reduce it
What two main sources make up total equity?
Contributed + Earned capital
What happens when a company issues shares?
Contributed capital increases
Why is retained earnings considered “earned”?
It comes from business operations, not owner investment
Net income is calculated as what?
Revenue – Expenses
Why are dividends not considered an expense?
They are distribution of profit, not operating cost
What account summarizes profits kept in the business?
Retained earnings
A company buys back its own shares. What happens to contributed capital?
It decreases (treasury stock effect)
How does accumulated net losses affect retained earnings?
It reduces retained earnings
Explain the effect of net loss on total equity in one sentence.
It reduces retained earnings and total equity
If dividends exceed net income, what happens to retained earnings?
They decrease overall
Explain why owner investments and business profits are recorded separately within equity.
Because owner investments belong to contributed capital, while profits belong to earned capital (retained earnings).