Don’t be fooled by the balance sheet entry labeled “common stock.” This refers to the par value (or stated value) of the stock, which has nothing at all to do with the market value of the stock. Assume you generate $10,000 of net profit on the sales of inventory and use the $20,000 to buy more inventory. If you take on a company car loan of $25,000, this becomes a liability. The asset breakdownnow becomes $80,000 in cash and $20,000 in inventory. If you then take the $100,000 and buy $20,000 in product inventory, your assets remain the same aggregate. Information regarding the par value, authorized shares, issued shares, and outstanding shares must be disclosed for each type of stock.An abnormal, or debit balance, may indicate an overpayment on a bill or an accounting error. Preferred stock, common stock, additional paid‐in‐capital, retained earnings, and treasury stock are all reported on the balance sheet in the stockholders’ equity section. When these shares are sold for an amount in excess of their par value, the excess amount is recorded separately in an additional paid-in capital account.Retained earnings are listed in the shareholders’ equity section of the balance sheet. The common stock account is a general ledger account in which is recorded the par value of all common stock issued by a corporation. About Common Stock What is common stock on the balance sheet? Liability accounts have a normal credit balance – they increase with a credit entry. To keep the accounting equation balanced, accountants record liability account increases in the opposite manner of asset accounts. Liabilities have opposite rules from asset accounts, since they reside on the other side of the accounting equation. The balance sheet is organized into three categories-assets, liabilities and equity-and includes five types of account entries. Rules of Debits & Credits for the Balance Sheet & Income Statement Overview of Long-Term Liabilities
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