Why does Share Capital Appear on Liabilities Side of Balance Sheet

Balance sheet is the statement which is made on the basis of accounting equation. In simple accounting equation, total assets will always equal to total liabilities. Total liabilities are divided into two parts. One is outside liability and other is inside liability. Inside liability is owner's capital. So, we keep capital in the liability
side of balance sheet. There are lots of reasons behind this which we are explaining in following points.

1. Company is Separate from Shareholders

Some may say it is the investment of owner or shareholder. Why does it keep in liability side instead of asset side. Actually, it is the investment of owner or shareholder but not of business or company. Business is separate from businessman. Business takes money from businessman for operating business. It will be returned one day. So, it is the liability of business. We all see when a shareholder need money, he sells his shares immediately. It means, same liability is transferred from one shareholder to other shareholder. But in the balance sheet, share capital will be same. But when company liquidates, share capital is also returned to its  shareholder. In small business, you also see that when a businessman closed his business, he carried all things for his personal use. So, it should be clear that share capital must appear on the liabilities side of balance sheet.

2. Shareholder Gets Earning from his Shares

you see when a person invests his money in bank, he gets earning in the form of interest. All these money is shown in the liability side of balance sheet of bank. It is just like loan taken by bank from his customer. Like this, company issues shares. Company uses this money for his business. When company earns money, shareholders get earning from his shares. So, company can give dividend to shareholders if shareholders money will show in the liability side. It is the liability of company and company gives happiness to shareholders by giving them dividend reward.

3. It is the Source of Fund

Instead of thinking it as liability, you can think it as source of fund. Suppose, a company has big project. Suppose it wants to make a big budget film. For paying actors, travelling, technical fees, it needs big money. Company issues the shares. By issuing shares, company invites the public for buying their shares. It is called IPO ( Initial public offering). When public buys the shares, it becomes the source of his total fund. Now, it is shown in the source of fund. Other side will be the application of fund. Now, in simple words, we say source of fund as liability and application of fund as assets.

4. Share Capital is Different from Debt 

Debt can easily identify as liability of business because it must be payable after sometime. We have to pay interest on debt with fixed rate. But share capital is also given money to company but we do not include it in the debt because shareholder are the real owner of business. They have right to vote. They have made the board of directors. They take big decisions through his voting rights. They suffers the losses. So, difference between the total assets and debt will be share capital. It means, if we sell everything and pay our total debt, rest will be the part of share capital. So, share capital and total debt is equal to total assets. 

COMMENTS

Comments on this Website
.
Share above Content to Your Friends



Name

access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
false
ltr
item
Accounting Education: Why does Share Capital Appear on Liabilities Side of Balance Sheet
Why does Share Capital Appear on Liabilities Side of Balance Sheet
http://2.bp.blogspot.com/-KKW8PBBpRDk/UB9SPSbgdEI/AAAAAAAAIe8/gPrj1W2miDo/s640/balance+sheet.PNG
http://2.bp.blogspot.com/-KKW8PBBpRDk/UB9SPSbgdEI/AAAAAAAAIe8/gPrj1W2miDo/s72-c/balance+sheet.PNG
Accounting Education
http://www.svtuition.org/2012/08/why-does-share-capital-appear-on.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2012/08/why-does-share-capital-appear-on.html
true
2410664366776677676
UTF-8
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock