The accounts set up in this section will depend on the legal structure of your business. In a sole proprietorship, there will be an owner’s capital account, to show the amount invested in the business. An owner’s withdrawal account should also be set up to record amounts withdrawn from the business. In a partnership, there are partners’ capital accounts and partners’ withdrawal accounts. If separate accounts for each partner are not set up on the chart of accounts, there should be a supporting record of each partner’s individual account.
In a corporation, there should be a capital stock account, which may be broken down into common stock and preferred stock, if applicable. If the stock has a par or stated value and is sold at more than this amount, the excess would be recorded in an additional paid-in capital, or share premium account. Any stock that the corporation buys back is recorded in a treasury stock account. There may also be accounts set up for legally-required, or other types of reserves.
In addition to capital contributions or paid-in capital, the equity section also has accounts to record the net income or loss for the period, and accumulated earnings (or losses). In a sole proprietorship or partnership, the title accumulated earnings is probably more common. A partnership should have accounts, or supporting records showing each partner’s share of the earnings. In a corporation, the title retained earnings is generally used. A corporation may also have accounts set up for interim dividends and dividends reserve.