Types of Transactions That Affect the Equity of the Company

Types of Transactions That Affect the Equity of the Company
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If a company decided to use all of its assets to pay off its current and long-term debts, the remaining amount would be its equity balance. Often referred to as a company's net worth, the equity balance may be impacted by gains and losses from operations and investments, accounting changes and adjustments, the payout of cash dividends and other equity transactions.

Issuance of Stock

When a corporation raises funds by issuing capital in the form of common and preferred stock, this transaction results in an increase in shareholders' equity. The balance of common and preferred stock is stated on the company's balance sheet at the par value of the total number of shares issued and outstanding, while any excess over the par value price may be shown under capital in excess of par value.

Repurchase of Stock

Stock repurchases are authorized by the company's board of directors. The shares may be repurchased to return excess cash to shareholders, to be used in employee stock and incentive plans or simply to reduce the number of shares that are outstanding.

Cash Dividends

When a corporation rewards its shareholders with a distribution of corporate profits in the form of a cash dividend, the transaction not only decreases the company's cash balance, but also decreases its retained earnings balance -- a component of shareholders' equity.


A company's equity balance is impacted by transactions that are related to its financial performance and results, such as sales, wages and manufacturing costs. When a corporations' total revenues exceed its total expenses for the company's fiscal year, the resulting net income increases the company's equity balance.