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Reading and interpreting a balance sheet, in principle, is not a simple task for those who are unfamiliar with accounting statements. However, the need to understand what these numbers tell you must be above this difficulty, so you can know what happens inside your business and how to position yourself in situations that require your decision.

Shareholders’ equity is one of the most important components of the balance sheet. So now know what this set of numbers tells your business!

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What is net worth?

The balance sheet is divided into two major groups: assets and liabilities. The former represents the assets and rights of the company, while the latter meets its obligations. Shareholders’ equity is part of the liability, but is considered as a liability that is not demandable, as it is the “debt” of the legal entity vis-à-vis the other persons that make up the entity, whether an individual businessman, a company or a group of shareholders.

Conceptually speaking, net worth is the representation of the effective wealth of the company. In this group, information such as the amount invested in the business, the profits that were generated and are awaiting distribution among shareholders / shareholders, treasury shares and securities reserves are gathered.

How to calculate the net worth?

Shareholders’ equity is calculated through the accounting entries originated from the company’s operation. For each contribution of values ??in your business, for example, there is an increase in the share capital, which is one of the accounts that make up the shareholders’ equity. Another situation that may influence this subgroup of liabilities is when your company calculates profits, which, depending on your tax regime, will be recorded in retained earnings accounts or profit reserve until distribution to shareholders / shareholders.

You can easily calculate the total amount of equity by the difference between the total assets and the liabilities due. Just view the formula

Shareholders’ Equity = Assets – Liabilities

Example of formation of shareholders’ equity

Consider the fictitious Fashion Fashion company, a retailer of women’s clothing, being a partnership between the businesswomen Roberta and Luciana. The two invested the total capital of 30 thousand reais, and the portion of 20 thousand reais in the property and merchandise to be resold was paid in full. To date, the net worth of the company is represented as follows:

Share capital = 30,000.00

(-) Capital to be paid up = 10,000.00

Total Shareholders’ Equity = 20,000.00

After a month of hard work, divulging the store and counting on the support of vendors, Roberta and Luciana invoiced the amount of 8 thousand reais, which, net of ISS, ICMS and federal taxes, costs and expenses, generated a profit of 5 thousand real. The impact of this profit on shareholders’ equity will be as follows:

Share capital = 30,000.00

(-) Capital to be paid up = 10,000.00

(+) Retained earnings = 5,000.00

Total shareholders’ equity = 25,000.00

The partners resolved to pay the remaining 10,000 dollars of the capital for more merchandise to resell and maintain the stockpiled stock. After this purchase, the shareholders’ equity will be represented as follows:

Share capital = 30,000.00

Retained earnings = 5,000.00

Total shareholders’ equity = 35,000.00

Viewing this information from equity should be part of your business routine. This is the health of your business, which must be seen and reviewed frequently. Work with your accountant so you can get the most accurate representation on the balance sheet, making it easier to make decisions in the future.

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