Information contained on a company’s balance sheet can help you calculate total stockohlders' equity -- also known as shareholders' equity. A balance sheet lists a company’s assets, liabilities and shareholders’ equity. The balance sheet is based on the accounting equation, which states that assets equal liabilities plus shareholders’ equity.
Assets appear on the left side of a balance sheet while liabilities and shareholders’ equity are on the right. Every transaction made by a business affects at least two of the company’s accounts. For instance, when a company issues stock to new investors, the cash account increases and stockholders’ equity increases.
A company must sum all current assets, which are economic resources that a company expects to convert into cash in less than one year. Current assets consist of resources such as inventory, prepaid rent, cash and accounts receivable. A company must tally all long-term assets, which consist of items such as patents, buildings, land and equipment. Long-term assets are resources that will take longer than one year for a company to convert into cash. The company must add long-term assets with current assets to determine its total assets.
A liability is an obligation placed on a company’s resources as a result of a prior transaction. A company must calculate all current liabilities that will be due within one year. These liabilities include accounts payable, salaries payable, rent payable and unearned revenue. A company must compute all long-term liabilities that the company must pay in over one year. Long-term liabilities include notes payable, bonds payable, mortgages payable and leases. The company must add long-term liabilities with current liabilities to produce the company’s total liabilities.
Shareholders’ equity is the residual amount left in the company after deducting liabilities from assets. Shareholders’ equity indicates the investment owners have in the business. Calculating total shareholders’ equity becomes easy when a company calculates total assets and total liabilities. The accounting equation states that shareholders’ equity equals assets minus liabilities. For example, assume a company has total assets equal to $150,000 and liabilities of $105,000. In this scenario, the company has shareholders’ equity of $45,000.