The financial statements of corporations are different from those of other forms of business in several aspects. Instead of having an owner's equity section in the balance sheet statement, a corporation has a stockholders' equity. Shareholders' equity is composed of capital stock and retained earnings. Capital stock represents the initial investment of the shareholders. Retained earnings represents accumulated profits. The owner's equity statement is usually called retained earnings statement. The retained earnings statement will at times have deductions called dividends which represent payments of earnings to shareholders. Whenever shareholders buy shares of stock from the corporation, assets and stockholders' equity increase. The reverse occurs when dividends are distributed.
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