Main equity accounts

Net worth o Net equity is the name that receives the total value of the assets of a company after having discounted all its debts (liabilities). This amount includes any initial contribution from its founding partners that is not listed as a liability, as well as the accumulated results or any other variation that may affect them.

Instead, hedging operations Cash flows or other similar that remain to be allocated in debit and credit, will not be considered part of the net worth. It is, in accounting terms, a patrimonial mass what has balance creditor and whose general calculation formula is the following:

Assets – Liabilities = Equity

Thus, accounts that represent an increase in net worth will be considered Profits, while those that suppose its decrease will be considered losses.

Traditionally, the net worth is made up of the following accounts, divided according to their origin:

  • Social capital.
  • Bookings. Retained earnings affected.
  • Accumulated results. Utilities devoid of specific affectation.

Main equity accounts

  1. Contributions from the owners. It is the initial capital contributed by the owners, also called initial equity.
  2. Profit reserves. The amount that is not distributed once the fiscal year is closed, either by company provisions, legal provisions or by the will of the partners. Depending on their origin and motivation, they can be legal reserves (mandatory), statutory reserves or optional reserves.
  3. Unallocated results. Accumulated gains or losses without a specific allocation, which may be destined to increase capital, dividend, retention as reserved income (in the absence of legal commitments that prevent it) or may continue to be allocated. Together with earnings reserves, they constitute retained earnings.
  4. Capital reserves. Formed by issue premiums, that is, the premium that an issuing entity imposes on the placement of the company’s shares. These capital reserves do not come from results.