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6 May, 2015 - 17:10

The shareholders' equity (that is, owners' equity of a corporation) consists of primarily paid-in capital and retained earnings. Paid-in capital represents the funds paid for shares of stock. When more than one class of stock is issued, separate paid-in capital accounts are maintained. The retained earnings account should normally have a credit balance, and it represents past net income that has been accumulated by the corporation. Dividends are paid out of retained earnings resulting in debit to retained earnings account. If the retained earnings account balance is itself a debit, a deficit has been incurred by the corporation, i.e. losses in excess of profits.